June 30, 2019

Pending homes sales up as optimistic consumers confront higher prices, rents


2019 NEAR President

The Northeast Tennessee Association of Realtors® (NETAR) and Realtor Property Resource (RPR) is reporting 958 new approved contracts – pending home sales - in May bringing the total active number of deals to 1,350. Don’t expect all of them to close. NETAR’s Pending Sales Index shows an 8 percent increase in new pending sales when compared to May last year while the active index is 12 percent better.

The pending sales index is closely watched because it is a leading indicator of housing activity. It’s based on signed contracts for existing single-family homes, condominium, and townhome resales. Since resales go under contract a month or two before the transaction is closed, the index typically leads existing home sales by a month or two.  The index is based on a year-over-year rolling average of approved contracts compared to the average of the current month to take some the noise out of the data. The data is noisy because not all contracts move to closings. Under normal market conditions, up to 5 percent of contracts fall through. In today’s market, the local fall-through rate has been double or more than the benchmark due to the number of contingencies attached to the contracts.

The bottom line is the index points to a market where consumers are optimistic about housing.  The biggest driver of that local consumer confidence and optimism is the employment and wage picture. For the past two years total local wage increases finally outpaced inflation – in 2017 by 1 percent and in 2018 by 1.1 percent

Another factor is owners who have been thinking about selling but sitting on the fence are taking the plunge. That is one of the “good time to sell” points that showed up in NAR’s June Home Survey. NAR’s Chief Economist Lawrence Yun said, “Sellers understand that the days of large price gains from holding an extra year are over.”

There are also signs that rent increases are pushing more people to take a second look at homeownership.

Let’s take a little closer look.

benchmark for how much a person should spend on housing is 30 percent of his or her income. That’s the standard the Federal Housing Administration (FHA) uses. In the real world, 35 percent is a closer benchmark, but anything over that is called housing stressed.

According to the most recent Census report, 47 percent of renters in the Johnson City Metropolitan Statistical Area (MSA) pay 35 percent or more of their income on housing compared to 19.4 percent of the MSA’s homeowners.

In the Kingsport-Bristol MSA, 36.6 percent of renters are housing stressed while 17 percent of homeowners pay more than 35 percent.

Break down those percentages to people, and you’ll see 35,572 Tri-Cities residents are paying more than the FHA says they should on housing and 61 percent of them – 21,489 – are renters.

Market watchers should expect some big fall-through adjustments to May’s preliminary new contracts totals, but the index points to closings for the peak buying and selling season at or just below what we saw last year as the dance between higher home prices, higher rents and optimistic consumers plays out in the local housing economy.

NETAR is the voice for real estate in Northeast Tennessee. It’s the largest trade association in Northeast Tennessee, Southwest Virginia region representing over 1,200 members and 100 affiliates involved in all aspects of the residential and commercial real estate industries. Pending sales, monthly Trends Reports, and the regional market analytics can be found on the NETAR websites at .