U.S. pending home sales jump 1.6% in August on low mortgage rates

The nation’s low interest rate environment spurred an increase in pending home sales in August, as the index rose 1.6%, according to the National Association of Realtors.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased to 107.3 in August, rising from July’s 105.6.

Contract signings compared to a year earlier climbed 2.5% from last month’s increase, NAR said.

The index revealed that activity in all four major regions improved as the PHSI in the Northeast, South, Midwest and West increased year over year.

“It is very encouraging that buyers are responding to exceptionally low interest rates,” said Lawrence Yun, NAR chief economist. “The notable sales slump in the West region over recent years appears to be over. Rising demand will reaccelerate home price appreciation in the absence of more supply.”

These are the PHSI changes for each region:

  • Northeast: Increased 1.4 % to 94.3 and is 0.7% higher than August 2018
  • Midwest: Increased 0.6% to 101.7 and is 0.2% higher than August 2018
  • South: Increased 1.4% to 124.4 and is 1.8% higher than August 2018
  • West: Increased 3.1% to 96.4 and is 8% higher than August 2018

Yun says that moving forward, historically low interest rates will affect economic growth, especially home buying.

“With interest rates expected to remain low, home sales are forecasted to rise in the coming months and into 2020,” Yun said. “Unfortunately, so far in 2019, new home construction is down 2.0%. The hope is that housing starts quickly move into higher gear to meet the higher demand. Moreover, broader economic growth will strengthen from increased housing activity.”

The latest Housing Market Index, produced by the National Association of Home Buildersand Wells Fargo, offers the housing market some hope.

In September, the index measuring current sales conditions rose from 73 to 75 points, highlighting improvements in the market.

Low interest rates and solid demand continue to fuel builders’ sentiments even as they continue to grapple with ongoing supply-side challenges that hinder housing affordability, including a shortage of lots and labor,” NAHB Chairman Greg Ugalde said in a statement.

But while sentiment may be improving, Robert Dietz, NAHB’s Chief Economist, warns that builders are still concerned about the nation’s economic security. According to the index, expectations over the next six months fell a single point to 70 in August.

“Solid household formations and attractive mortgage rates are contributing to a positive builder outlook,” NAHB Chief Economist Robert Dietz said. “However, builders are expressing growing concerns regarding uncertainty stemming from the trade dispute with China. NAHB’s Home Building Geography Index indicates that the slowdown in the manufacturing sector is holding back home construction in some parts of the nation, although there is growth in rural and exurban areas.”