By Vicki Needham - 07/28/14 10:28 AM EDT
After three consecutive months of solid gains, pending home sales slowed modestly in June amid an improving housing market that is still facing inventory and credit challenges.
The sales index, a forward-looking indicator based on contract signings, declined 1.1 percent to 102.7 last month from 103.8 in May, the National Association of Realtors said Monday.
"Activity is notably higher than earlier this year as prices have moderated and inventory levels have improved,” said Lawrence Yun, NAR chief economist.
“However, supply shortages still exist in parts of the country, wages are flat, and tight credit conditions are deterring a higher number of potential buyers from fully taking advantage of lower interest rates."
Still, Yun expects a slight uptick in sales during the second half of the year.
“The good news is that price appreciation has decreased to its slowest pace since March 2012 behind much needed increases in inventory,” he said.
“With rents rising 4 percent annually, potential buyers are less likely to experience sticker shock and can make smart decisions on whether or not it makes sense to buy or continue renting.”
Regionally, two of four regions saw increases.
The index in the Northeast fell 2.9 percent while sales in the South dipped 2.4 percent. The Midwest's index rose 1.1 percent and the West's was up slightly by 0.2 percent.
Yun forecasts that existing-homes sales will fall 2.8 percent this year to 4.95 million, compared with 5.1 million sales of existing homes in 2013.
The national median existing-home price is projected to increase between 5 and 6 percent this year and in 2015.
Last week, a government report showed that sales of newly built, single-family homes fell 8.1 percent to a seasonally adjusted annual rate of 406,000 units in June. Sales numbers for May were revised downward to 442,000.
But home builders remain cautiously optimistic about growth this year.
Meanwhile, another report showed that housing starts fell 9.3 percent in June mostly because of a nearly 30 percent decline in the South. All other regions posted monthly gains.
“A modest 2.6 percent increase in single-family permits falls in line with the general optimism that we are hearing from our builders,” said Kevin Kelly, chairman of the National Association of Home Builders (NAHB) and a home builder and developer from Wilmington, Del.
Single-family housing starts were down 9 percent to a seasonally adjusted annual rate of 575,000 units in June, while multifamily production fell 9.9 percent to 318,000 units.
“Take away the South and nationwide housing starts would have been in positive territory this month,” said David Crowe, NAHB chief economist.
“This sharp regional decline could be due in part to lots and labor shortages, which are particularly acute in that part of the country. However, the general direction of housing production is trending upward, and we expect 2014 to be a positive year.”