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Pending Home Sales Retreat in August10-10-16 | Economic News

Pending Home Sales Retreat in August
Drop Attributed to Lack of Inventory

The Pending Home Sales Index of the National Association of Realtors dropped 2.4 percent in August, compared to July. The NAR said a lack of housing inventory was primarily to blame.

Pending home sales climbed respectably in July only to lose most of its upward momentum the following month. As a result, the Pending Home Sales Index of the National Association of Realtors fell 2.4 percent in August and has dropped to its second lowest reading of 2016.

The decline in the PHSI has been tied to a lack of available homes. Housing inventory has declined year-over-year for 15 straight months. The PHSI jumped 1.3 percent in July, compared to June.

"Evidence is piling up that without more new home construction the current housing recovery could stall," said Lawrence Yun, chief economist for the NAR.

Properties in August typically sold 11 days faster than in August 2015, and after increasing 5.1 percent last month, existing-home prices have risen year-over-year for 54 straight months.

The Pending Home Sales Index is a forward-looking indicator based on contract signings, and it fell to 108.5 in August from 111.2 in July. It is now slightly lower (–0.2 percent) than August 2015 (108.7). The PHSI's lowest reading in 2016 was in January (105.4).

"Contract activity slackened throughout the country in August, except in the Northeast, where higher inventory totals are giving home shoppers greater options and better success signing a contract," Yun said. "In most other areas, an increased number of prospective buyers appear to be either wavering at the steeper home prices pushed up by inventory shortages or disheartened by the competition for the miniscule number of affordable listings."

On a regional basis, the PHSI rose in the Northeast 1.3 percent in August, but declined in all other regions. It dropped 0.9 percent in the Midwest; shed 3.2 percent in the South; and fell 5.3 percent in the West.

Slower Construction Growth Rate Forecast
Most commercial and industrial sectors recorded huge double-digit jumps in 2015, but don't expect a repeat of such performances this year or next.

"After a solid performance last year, where most commercial and industrial construction sectors grew by 20 percent or more, 2016 is viewed as a year where activity is expected to moderate," the American Institute of Architects said.

After a 17 percent jump in 2015, the AIA is predicting a 5.8 percent expansion in nonresidential construction activity this year, declining modestly to 5.6 percent in 2017.

The commercial sectors are expected to be the strongest performers, with an 11.7 percent gain this year and 6.5 percent in 2017, paced by the strong office and retail sectors. Industrial construction grew by more than 40 percent in 2015, but is projected to be flat this year and next.

One reason for the decline is the "slower growth path" the overall U.S. economy seems to be taking in 2016, said Kermit Baker, chief economist for the AIA. This has put "downward pressure" on the construction industry.

The AIA's Architecture Billings Index (ABI) is an accurate indicator of construction activity that leads spending in the nonresidential sector by nine to 12 months. There are signs that progress in design activity may be slowing: the average ABI score of 51.8 for the first half of 2015 dipped to 51.3 for the second half of last year, and it has remained at around 51 for the first half of this year.

Much of the expansion in 2016 and 2017 will be driven by consistently strong demand in the hotel, office, and amusement-recreation industries, the AIA said.

"Commercial construction sectors are projected to be the strongest performers this year, with the institutional categories moving back a bit from their pace of last year," Baker said. "Next year, the commercial sectors are expected to see slower, yet still healthy, levels of growth, while most institutional sectors will see a somewhat accelerated pace of activity."