There's a good reason pending home sales were down recently.
Though the housing market has been on fire since mortgage rates dropped to record lows last year, pending home sales actually declined by 4.4% in April compared to the previous month, according to the National Association of Realtors.
When we look at the state of the housing market, it's easy to see why.
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Housing inventory is at a low
A "pending home sale" is when a purchase agreement has been signed, but the deal hasn't been completed. It can easily take as long as 60 days from the time a seller accepts an offer on a home and enters into a contract with a buyer to when that contract is closed out, and pending home sales are used as an indicator of how active the housing market is.
Often, a drop in pending home sales means buyer demand is waning. But that's not the case today. Rather, pending homes sales have dropped because there haven't been as many homes to buy. In fact, inventory has been astoundingly low.
Normally, spring is when there's a huge influx of housing inventory. This year, there wasn't one. It could be that potential sellers wanted to sit tight to see how things shook out with the pandemic. Or, it could be that, after a crazy year, fewer sellers wanted to deal with the upheaval of listing a home and moving. But either way, housing inventory has been minimal these past few months, and when there are fewer homes to buy, there are fewer pending contracts to follow.
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Will the housing market open up soon?
In the absence of a crystal ball, it's hard to predict when inventory will increase. It stands to reason that as the economy recovers and things improve with the pandemic, more people will want to list their homes. But whether that happens this summer, this fall, or at a later point is yet to be determined.
That leaves buyers in today's market in a tough spot. Because there's so little inventory, home prices are going up, and buyers get shut out of once-affordable neighborhoods in the process.
While there's no guarantee that housing inventory will pick up this year, it could pay for worn-out buyers to put their home searches on hold for a bit. There's a strong chance mortgage rates will remain competitive for the remainder of the year and even beyond, so taking a break doesn't necessarily mean giving up a great deal on a home loan. What it does mean, however, is avoiding a potentially fruitless house hunt, and enjoying the summer instead.
At some point, housing inventory is likely to increase. We don't know exactly when that will happen, but when it does, buying a home should become a less daunting and frustrating process.
Pending Home Sales Declined in April. Here's Why - The Motley Fool
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