by Wolf Richter, Wolf Street:
This is not good.
What’s causing the drop-off in pending home sales in the US, and in particular in the West?
- Surging home prices that have outrun wage increases for years?
- Mortgage rates that hover around 4.8% for the average 30-year fixed-rate mortgage, the highest since 2011?
- The massive affordability issues that come with the combination of soaring home prices and rising mortgage rates?
- A softening exuberance among homebuyers?
And it comes amid a sudden urge by homeowners and investors in many markets to put their homes and properties up for sale, while the market is still hot. And just as suddenly the supply is surging, in some of the metro areas by 50% to 90% from a year ago. More on that phenomenon in a moment.
One thing is clear, whatever the cause, the wind has changed in those markets.
In July, pending home sales fell 2.5% from a year ago, according to the National Association of Realtors this morning. It was the worst July in years.
This chart shows the trend of pending home sales going back through 2015, which each July marked. Note the peak of the sales enthusiasm: April 2015, when the index hit highs not seen since before “Housing Bubble 1” collapsed:
The index, based on a national sample of the transactions handled by the NAR’s members, is a leading indicator for actual sales. It tracks sales of existing homes, but not of new homes. A sale is listed as “pending” when the contract is signed but before the transaction closes, which usually happens within a month or two. Not all deals that are signed close.
The Pending Home Sales Index fell in all four regions, compared to July last year, but note the plunge in the West, fertile breeding ground for some of the most ludicrously overpriced markets in the US:
- Northeast: -2.3%
- Midwest: -1.5%
- South: -0.9%
- West: -5.8%.
The report explained: “The reason sales are falling off last year’s pace is that multiple years of inadequate supply in markets with strong job growth have finally driven up home prices to a point where an increasing number of prospective buyers are unable to afford it.”
And it added that “increasing inventory in several large metro areas, and especially many out West, will likely help cool price growth to more affordable levels going forward.” But the phrase, “increasing inventory in several large metro areas,” may be the understatement of the year.
In 25 metro areas (Metropolitan Statistical Areas as defined by the Census), supply of homes for sale in July skyrocketed by 20% to 90% compared to July last year. Some of the metros showed up prominently in my report yesterday: The Most Splendid Housing Bubbles in America.
Here are some select nuggets. The full list of the 50 metros with the biggest increases in supply is at the bottom.
Number on in the US: In the Santa Rose MSA, in Sonoma County, CA, in the northern part of the Bay Area, supply (active listings) skyrocketed 90%. Two weeks ago, I’ve done an anatomy of its deteriorating “subcutaneous” metrics that precede price decreases and have pinpointed the inflection point of the market in June.
And other select nuggets, scattered across the list of the top 50:
- In the white-hot Denver-Aurora metro, CO, active listings surged 82% from a year earlier.
- In the Vallejo-Fairfield metro, in the northern Bay Area, CA, active listings surged 69%
- In the southern half of Silicon Valley, the San Jose-Sunnyvale-Santa Clara metro, active listings also surged 69%.
- In the Seattle-Tacoma-Bellevue metro, WA, supply jumped 36% year-over-year.
- In Southern California’s San Diego-Carlsbad metro, supply jumped 28%.
- In the Nashville-Davidson–Murfreesboro–Franklin, TN, metro, active listings rose 24% year-over-year.
- In the San Francisco-Oakland-Hayward metro, supply rose 22%.
- In the Portland-Vancouver-Hillsboro, OR-WA, metro, supply rose 20%.
- Even in the Dallas-Fort Worth-Arlington metro, which is at the bottom of the list in 50th place, supply rose 13% compared to a year earlier.
In other words, there are 50 metros where supply rose by 13% to 90%. Obviously, there are many metros where supply fell – and that’s why real estate, to this day, remains local; the dynamics in San Francisco simply don’t matter all that much in Boston – but they do matter in San Francisco!
The list below has the 50 Metropolitan Statistical Areas with the largest increases in active listings in July, compared to a year ago. It also shows the median price of the listed properties (half are listed for more, half are listed for less). The data comes from the realtor.com residential listings database.