Inventory shortage drags pending home sales down in March

Dive Brief:

The rate of pending home sales, which indicates the number of U.S. homes currently under contract in the U.S., dipped 0.8% from February to March to a mark of 111.4 on the National Association of Realtors’ latest Pending Home Sales Index, released Thursday.
The Midwest, Northeast and West posted losses for the month, while the South saw an increase of 1.2% to 129.4 and was 3.9% ahead of March 2016. The Midwest fell 1.2% to 109.6 in March, and came in 2.4% below a year ago. The Northeast dropped 2.9% to 99.1 in March, but was 1.8% ahead of the year-ago mark. And the West decreased 2.9% during the month to 94.5, putting it down 2.7% year-over-year.
The March reading came in 0.8% ahead of the same period a year ago, after hitting the highest mark since April 2016 in February.

Dive Insight:

Low inventory levels triggered the slowdown in pending home sales, but the year is still off to a strong start, according to NAR Chief Economist Lawrence Yun. With the season's selling season underway and high demand levels in the market, a shortage of listings — particularly in the entry-level price range — continues to be a drag on sales, he said in a release.

Meanwhile, new- and existing-home sales lifted in March, with new-home sales climbing 5.8% from February and 15.6% from the year before, and existing-home sales swinging back 4.4% in March to the fastest pace in more than 10 years.

While confidence in the market for single-family housing reached a 12-year high for the month, April's forecast was slightly less optimistic, with the National Association of Home Builders/Wells Fargo Housing Market Index dipping three points. The month saw a leveling off in all three index measures, with both current sales conditions and sales expectations for the coming six months falling three points, and buyer traffic decreasing one point.

The persisting lot and labor shortage continue to be a drag on the market's recovery, as builders struggle to meet high demand. The increasing cost of doing business and rising mortgage rates also stand to hamper growth in the market. Still, despite a nearly 7% drop-off in housing starts for the month, an uptick in building permit authorizations could mean more growth and increased confidence in residential construction for the months ahead.

For more housing news, sign up for our daily residential construction newsletter.