The pending home sales index, an indicator of future home purchases released by the National Association of Realtors, recently showed a record low in the second quarter of 2020. The index measures signed contracts for existing homes, and this quarter’s reading of 82.5 was the lowest since the index began in 2001. The figure was worse than the 89.3 reading from 2008 during the peak of the financial crisis.
The drop in the index suggests that the number of home sales is likely to decline in the near future. Realtors attributed the drop in numbers to economic uncertainty still caused by the Coronavirus pandemic. With millions of Americans out of work and facing economic uncertainty, potential homebuyers remain cautious about making the considerable financial investment of buying a house or limiting their search to only those homes that they can afford.
The effects of the pandemic have been far reaching, further complicating an already complex industry. Higher mortgage rates have resulted from businesses or governments seeking to pick up the tab for lost business due to the pandemic, meaning that potential buyers have to stretch their budgets a bit more to finance a purchase. In addition, a shortage of housing supply has contributed to high home prices. The index showed an overall decrease in homes available for sale, specifically a double-digit drop for houses under $250,000.
Despite the lower index, realtors remain optimistic. They anticipate that demand for home sales will remain, though likely at a more muted level than previously predicted. Many believe that the low mortgage rates and affordable housing options will still attract buyers, while public health concerns will continue to limit supply.
By using caution and making smart decisions, real estate agents are working to ward off any further flood of foreclosures can cause by keeping homeowners informed about their options. With a little luck, the industry will be able to recover from the economic turmoil of 2020, and the pending home sales index will reflect this in the future.