Pending home sales were mostly unmoved in June, but did creep slightly higher as supply and affordability constraints prevented a bigger boost in activity from mortgage rates that lingered near all-time lows through most of the month, according to the National Association of Realtors. Increases in the Northeast and Midwest were offset by declines in the South and West.

The Pending Home Sales Index,^* a forward-looking indicator based on contract signings, inched 0.2 percent to 111.0 in June from 110.8 in May and is now 1.0 percent higher than June 2015 (109.9). With last month's minor improvement, the index is now at its second highest reading over the past 12 months, but is noticeably down from this year's peak level in April (115.0).

Lawrence Yun, NAR chief economist, says a solid bump in activity in the Northeast pulled up pending sales modestly in June. "With only the Northeast region having an adequate supply of homes for sale, the reoccurring dilemma of strained supply causing a run-up in home prices continues to play out in several markets, leading to the last two months reflecting a slight, early summer cooldown after a very active spring," he said. "Unfortunately for prospective buyers trying to take advantage of exceptionally low mortgage rates, housing inventory at the end of last month was down almost 6 percent from a year ago,¹ and home prices are showing little evidence of slowing to a healthier pace that more closely mirrors wage and income growth."

Adds Yun, "Until inventory conditions markedly improve, far too many prospective buyers are likely to run into situations of either being priced out of the market or outbid on the very few properties available for sale." 

One noteworthy and positive development occurring in the housing market during the first half of the year, according to Yun, is that sales to investors have subsided from a high of 18 percent in February to a low of 11 percent in June, which is the smallest share since July 2009². Yun attributes this retreat to the diminished number of distressed properties coming onto the market at any given time and the ascent in home prices, which have now risen year-over-year for 52 consecutive months.

"Limited selection of homes at bargain prices is reducing the number of individual investors willing or able to buy," adds Yun. "This will hopefully open the door for first-time buyers, who made some progress last month³ but are still buying homes at a subpar level even as rents increase at rates not seen since before the downturn⁴."

In spite of the slight slowdown in contract signings from April's peak high, existing-home sales this year are still expected to be around 5.44 million, a 3.6 percent boost from 2015 and the highest annual pace since 2006 (6.48 million). After accelerating to 6.8 percent a year ago, national median existing-home price growth is forecast to slightly moderate to around 4 percent.  

Regional Breakdown

The PHSI in the Northeast advanced 3.2 percent to 96.0 in June, and is now 1.7 percent above a year ago. In the Midwest the index increased 0.8 percent to 108.9 in June, and is now 1.6 percent higher than June 2015.

Pending home sales in the South decreased modestly (0.6 percent) to an index of 125.9 in June but are still 1.8 percent higher than last June. The index in the West declined 1.3 percent in June to 101.3, and is now 1.8 percent below a year ago.

The National Association of Realtors, "The Voice for Real Estate," is America's largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.

¹Total housing inventory at the end of June dipped 0.9% to 2.12 million existing homes available for sale, and was 5.8% lower than a year ago (2.25 million). 
²According to the June Realtors^® Confidence Index, sales to investors fell to their lowest overall share since July 2009 (9 percent). 
³According to the June Realtors Confidence Index, sales to first-time buyers were the highest (33 percent) since July 2012 (34 percent).
⁴According the U.S. Bureau of Labor Statistics' Consumer Price Index, rents increased by 3.8% in June, the strongest pace since January of 2008.

^*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.