Slip in home sales good sign for commercial real estate agents

As mortgage rates relax, homebuyers' anxiety retreats along with pending home sales.

While a decline in home sales could mean bad news for commercial real estate companies, the role of other factors such as mortgage rates and inventory levels could alleviate any reason for concern. 

Bloomberg reported the National Association of Realtors index of pending home sales, which measures healthy amounts of housing activity, dropped by 0.4 percent in June. While some analysts are attributing this decline to rising mortgage rates, others find factors such as inventory constraints more plausible as the root of the decline.

"A gradual increase in mortgage rates is manageable for the housing market," said Ryan Sweet, a senior economist at Moody's Analytics. "[The decline] is a bump in the road. As long as they don't spike unexpectedly, I don't see any real threat from current mortgage rates."

Either way, economists polled by Bloomberg predicted a median decline in pending home sales of 1 percent in June, meaning that pending home sales remained more robust than expected. In a year-over-year comparison, pending home sale contracts rose by 10.9 percent, Reuters reported.

Sign of improvement
As long as the pending home sales index remains above 100, activity is considered healthy. Dropping from a revised 111.3 in May, June's 110.9 is still a very healthy rate. The housing recovery, as a result, impacts commercial businesses that manufacture or provide goods and supplies that are absorbed by homeowners and home builders.

"We are definitely seeing a firming in the housing market," said Daniel Terrell of Lumber Liquidators Holdings, Inc. "We still believe we're not seeing a full-scale recovery or a tsunami of pent-up demand come yet, but we've got low share."

However, mortgage rates do have a role to play. When mortgage rates increased swiftly, many buyers rushed the market, artificially increasing the number of pending home sales. As mortgage rates normalized after the Fed's reassurances it wouldn't taper its bond purchases unless the economy was ready, the number of buyers retreated. Activity is still healthy, however, and mortgage rates are still historically low.

"We had such an outsize gain in May and I think what we saw was a good number of people that were trying to beat the punch and pull the trigger on buying that home before mortgage rates rose even further," Sam Bullard, senior economist at Wells Fargo, told Reuters.

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