Contract signings for home purchases declined over the summer, but national data from October show a reversal of that summer trend. The Pending Home Sales Index (PHSI), a measure of home sales developed by The National Association of Realtors (NAR), increased by 0.2 percent to 107.7 during the month of October, despite losses in two of the four regions. Compared to this time last year, the index is 3.9 percent higher, which is the 14th month in a row that the index has increased on a year-over-year basis. The PHSI is widely recognized as one of the leading indicators of home sales.
Although the number of contract signings – considered a indicator of home sales because contracts typically become closed transactions within 60 days – was up nationally in October, there are significant regional differences in the data. The Northeast region gained 4.5 percent to 93.6 in October, taking it 6.8 percent higher than its index score in October 2014. Overall, housing markets in the Northeast have not seen the strong appreciation and limited supply that is plaguing other parts of the country. As a result, homes remain relatively affordable in the region, especially compared to other regions, particularly the South and the West, which have experienced a reduction in affordability in the housing market. This general affordability has helped to bolster home sales in the Northeast, as evidenced by burgeoning markets like Providence, Rhode Island, which is ranked as the hottest market for 2016.
The PHSI also showed gains in the West, with the index rising 1.7 percent to 106.2 in October, 10.4 percent higher than it was one year ago. Despite the growing lack of affordability in many markets in the West, NAR still projects that existing home sales will continue to increase through 2016, though growth will be tempered by inventory shortages and rising prices.
Contract signings in both the South and the Midwest saw losses in October. The South lost 1.7 percent to fall to an index of 118.1, while the Midwest dropped 1.0 percent in the index to 103.9. On an annual basis, the South is down 0.3 percent, but the Midwest is still exceeding the index at this time in 2014 by 3.3 percent.
The forecast for 2016 remains strong, though markets dependent on oil-related jobs should start too see a reduction in sales resulting from the declining energy prices. Yet, sales of existing and new homes are expected to reach 6 million for the first time since 2006. For the first time, millenials are expected to comprise the largest demographic of homebuyers next year.
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