By Sarah Portlock and Jonathan House
The number of prospective homeowners signing contracts to buy previously owned properties ticked up last month to the highest level in nearly three years, but the supply of unsold homes on the market remains thin.
The National Association of Realtors on Monday said its seasonally adjusted index for pending sales of existing homes rose to a reading of 105.7 in March, up 1.5% from the previous month and a gain of 7.0% from a year earlier. The last time the reading was higher was in April 2010 when home buyers were rushing to qualify for a tax credit.
The report beat expectations. Economists surveyed by Dow Jones Newswires had forecast the index would rise 1.0% from February’s previously reported reading of 104.8. That month was revised downward to 104.1. An index of 100 is equal to the average level of contract activity during 2001.
The pending home-sales report measures signed contracts to purchase homes. It typically takes around one to two months to complete a sale.
The Realtors group was cautious about the report, noting the level has hovered around 105 so far this year. “Contract activity has been in a narrow range in recent months, not from a pause in demand but because of limited supply,” said Lawrence Yun, the association’s top economist.
Demand for previously owned homes has been held back by a shortage of properties for sale, but rising prices have started to make people feel more comfortable that they can sell their house.
The inventory of previously owned homes listed for sale at the end of March increased 1.6% from February to 1.93 million, the Realtors group said last week. It was still the lowest tally for the month of March since 2000.
That represented a 4.7 month supply at the current sales pace, up from 4.6 a month earlier. The median price of homes sold in March was $184,300, up 11.8% from a year earlier, marking the biggest gain since November 2005.
Many economists believe housing will be one of the main economic drivers this year as prices rise, more homes are sold and builders break ground on new projects.
Still, the housing market faces headwinds as construction levels remain below their peak levels and tightened credit standards make it difficult for consumers to secure a mortgage. Many prospective homeowners have too little equity in their homes to sell their current residences and buy another home.
The Realtors report showed pending sales was mixed in all four U.S. regions compared with a month earlier. The index rose in the Midwest, South and West but was flat in the Northeast.