WASHINGTON -- The National Association of Realtors said Monday that its seasonally adjusted pending home sales index climbed 3.1 percent to 106.9 last month, the highest reading since June 2013.
Buying activity jumped in the Midwest and West while dipping slightly in the Northeast and South. The gains suggest that housing should overcome the recent hurdles of freezing weather and blistering snowstorms, as both buyers and potentially sellers return to the market.
"Pending sales showed solid gains last month, driven by a steadily improving labor market, mortgage rates hovering around 4 percent and the likelihood of more renters looking to hedge against increasing rents," Lawrence Yun, the National Association of Realtor's chief economist, said in a statement. "These factors bode well for the prospect of an uptick in sales in coming months."
Pending sales are a barometer of future purchases. A one- to two-month lag usually exists between a contract and a completed sale.
The upturn suggests a solid spring sales rebound, after a lackluster winter. But unlike last year when sales fell, spring began after more than a year of robust hiring that pulled the unemployment rate down to 5.5 percent, the lowest level in nearly seven years.
"What's different this time is that the surge in the pace of payroll growth means that the pool of prospective homebuyers is now rising more rapidly than at any time since the crash," said Ian Shepherdson, chief economist at Pantheon Macroeconomics.
Previously owned homes sold at an annual pace of 4.88 million in February, slightly below last year's levels, according to the Realtors. Prospective buyers were finding slim pickings as the supply of homes was just 4.6 months, compared with five full months a year ago and an average closer to six months in healthy housing markets.
But solid hiring over the past year and historically low mortgage rates may help to ease the affordability pressures from tight supplies.
Average 30-year fixed rates were 3.69 percent last week, according to the mortgage giant Freddie Mac, the Federal Home Loan Mortgage Corp. That average has plunged from a 52-week high of 4.41 percent, a sharp decrease that makes it easier to purchase more expensive homes.
Similarly, job gains should give consumers more financial flexibility to buy homes.
Employers have added 3.3 million jobs over the past 12 months, including 295,000 jobs in February. That rapid clip of hiring caused the unemployment rate to tumble to 5.5 percent from 6.7 percent. As the total number of paychecks have increased in the economy, more buyers should be able to afford homes, economists say.
The one missing piece in the housing rebound remains wage growth.
Earnings have risen at a drastically slower rate than home prices, putting many houses out of reach financially.
Over the past two years, homes nationwide outpaced wage growth by a 13-to-1 ratio, according to RealtyTrac, the housing data provider. Home prices have risen 17 percent since the middle of 2012 when the market bottomed out, while median wages have risen just 1.3 percent, RealtyTrac said.
But that might prove to be a positive, since modest wage gains should put a cap on how high prices can go and improve affordability in the coming years.
"Those markets with the biggest disconnect between price growth and wage growth during the last two years are most likely to see plateauing home prices in 2015 until wages catch up," said Daren Blomquist, a vice president at RealtyTrac.
Information for this article was contributed by Nina Glinski of Bloomberg News.
Business on 03/31/2015