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Pending home sales dip to four-year low

The U.S. housing market won’t break out of its sales slump anytime soon, the latest tracking data on pending home sales suggests.

pendsalesThe National Association of Realtors (NAR) pending home-sales index reached its lowest level since 2014 in November, declining by 0.7 percent over the October level, and down 7.7 percent annually. November also marked the 11th straight month of a year-over-year declines in the index. The index is based on signed contracts,  a forward indicator of future closings.

The news wasn’t all bad, however. The Northeast and West regions of the country posted modest increases in contract activity over the month, although the activity was down in both regions compared to last year, particularly in the West.

NAR Chief Economist Lawrence Yun said the sluggish pace of home sales in 2018 is likely a temporary phenomenon. He noted the recent dip in mortgage rates and uptick in home listings, factors that he said should bolster sales in 2019.

“Home sales in 2018 look to close out the year with 5.3 million home sales, which would be similar to that experienced in the year 2000,” Yun said. “But given the 17 million more jobs now compared to the turn of the century, home sales are clearly underperforming today. That also means there is steady longer-term growth potential.”

In the short term, however, Yun said the market will be hurt by the recent government shutdown. On Wednesday, the Federal Emergency Management Agency announced that it was suspending regular operations of the National Flood Insurance Program, which most Americans use when they need to obtain flood insurance. In flood-prone areas, buyers often need to obtain flood insurance to close on a federal government-backed mortgage. The federal insurance program has temporarily stopped issuing new policies or modifications to existing policies.  

“Unlike past government shutdowns, with this present closure, flood insurance is not available,” Yun said. “That means that roughly 40,000 homes per month may go unsold because purchasing a home requires flood insurance in those affected areas. The longer the shutdown means fewer homes sold and slower economic growth.”

Regionally, pending home sales in November were down in all regions year over year. The high-priced West region has seen the greatest annual decline at 12.2 percent, followed by the South (down 7.4 percent); the Midwest (7 percent); and the Northeast (3.5 percent). Pending home sales in November increased by 2.8 percent in the West, compared with the October level, and were up by 2.7 percent month over month in the Northeast, but were down 2.7 percent in the South and 2.3 percent in the Midwest over the same period. 


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