WASHINGTON – More Americans signed contracts to buy homes in July, a sign that buying has improved as mortgage rates have slipped, the number of listings has risen and the rate of price increases has slowed.
The National Association of Realtors said Thursday that its seasonally adjusted pending home sales index rose 3.3 per cent to 105.9 last month. Still, the index remains 2.1 per cent below its level a year ago.
The pressures that caused home sales to stall last year have started to ease. The average 30-year fixed mortgage rate has dropped to 4.1 per cent, a 52-week low. Prices are no longer rising at double-digit annual rates, thereby helping to improve affordability.
Pending sales are a barometer of future purchases. A one- to two-month lag usually exists between a contract and a completed sale.
The number of signed contracts in the Northeast climbed 6.2 per cent and is ahead of its pace last year. Pending sales also rose in the South and West, though the index for both regions remains below its levels in July 2013. Contracts in the Midwest fell 0.4 per cent last month and also lag behind the pace of a year ago.
Modest wage growth, which has barely run ahead of inflation, has hampered home sales. The Realtors forecast that roughly 5 million existing homes will be sold this year, down from 5.1 million in 2013.
But price growth, which had hurt affordability at the end of last year, has moderated in recent months.
The Standard & Poor’s/Case-Shiller 20-city home price index rose 8.1 per cent in June from 12 months earlier, according to a report this week. Year-over-year price gains at the start of 2014 had averaged more than 13 per cent, according to the Case-Shiller index.
And while more homeowners have started to list their properties for sale, the ability of the real estate market to grow is limited.
That’s largely due to the consequences of the housing bust that triggered the Great Recession at the end of 2007. Nearly 35 per cent of homeowners are still “effectively underwater” on their mortgages: They either have less than 20 per cent equity in their homes or they couldn’t sell their properties and have enough money left for a down payment on another home, the online real estate firm Zillow said this week.