Tight supply drives pending home sales down in April

Dive Brief:

The rate of pending home sales, indicating the number of homes under contract in the U.S., dipped 1.3% from March to a mark of 109.8 in April on the National Association of Realtors’ Pending Home Sales Index, released Wednesday.
The West increased 5.8% in April to an index score of 100, albeit 4.2% behind April 2016. The Northeast dropped 1.7% to 97.2 in April and was 0.6% behind the year-ago mark. The Midwest fell 4.7% to 104.4 in April, coming in 6.1% below a year ago. And the South decreased 2.7% during the month to 125.9, down 2.3% year-over-year.
Pending home sales in April were 3.3% below the year-ago period. This represents the first year-over-year decrease in the category since December 2016 and the largest such decline since June 2014.

Dive Insight:

Housing inventory is down 9% year-over-year, NAR Chief Economist Lawrence Yun said in a statement, a factor that continues to pull down pending home sales. The figures follow March's report, which saw the rate of sales dip 0.8% from February to 111.4 for the month. Yun said it is unlikely supply levels will pick back up as builders struggle to produce more new inventory and homeowners remain wary of listing their properties for fear of being unable to find a suitable trade-up home.

Additionally, the trend of home-price appreciation outpacing income growth will likely continue to take a toll on prospective buyers.

Sales of both new and existing homes fell back in April after a strong showing in March. Meanwhile, single-family housing starts increased slightly in April, though a drop-off in single- and multifamily permits during the month could mean less new construction activity and, in turn, increased competition among buyers in the near future.

Supply-side headwinds including a shortage of lots and skilled labor, as well as rising material prices, will continue to challenge the market's recovery, as builders scramble to keep pace with current demand.

Still, an increase in residential construction employment and an uptick in builder optimism are indications that the industry is gearing up to meet future demand. An uptick in sales expectations for the next six months and in current sales conditions, recorded in the latest National Association of Home Builders/Wells Fargo Housing Market Index, suggest that builders are hopeful for the ability to meet demand with new construction in the coming months.