Pending Home Sales Miss Big; How Markets Reacted

The National Association of Realtors reports that high prices are more to blame for a decline in sales than weakening demand. Total existing home sales for 2015 are projected to come in about 7.0 percent higher than 2014 sales.

According to the latest numbers from the National Association of Realtors (NAR), homebuyers willingness to pay increasingly hefty prices may be waning. The NAR reported Monday that pending home sales fell 1.4 percent month-over-month (M/M) in August, a sign that the housing market may be beginning to cool off.

Demand Not A Problem

Despite the disappointing headline number, NAR chief economist Lawrence Yun says that market fears and high prices, rather than lackluster demand, are to blame for the August decline.

Pending sales have leveled off since mid-summer, with buyers being bounded by rising prices and few available and affordable properties within their budget, Yun wrote in a statement.

Fundamentals Strong

August pending home sales remained 6.1 percent ahead of August 2014 levels. In addition, August represents the 12th consecutive month that sales have increased on a year-over-year(Y/Y) basis. Yun also believes that sales will continue to maintain their current growth pace in coming months.

The Numbers

The NAR is currently forecasting that the median sales price of an existing home in 2015 will be $220,300, a 5.8 percent increase over 2014. The total number of existing home sales for the year will come in at about 5.8 million, 7.0 percent higher than 2014s total, but still about 25 percent below the 7.08 million peak back in 2005.

Strong demand is the silver lining for shareholders of the SPDR S&P Homebuilders (ETF) (NYSE:XHB), which is down nearly 3.4 percent in Monday trading. The ETF is up 1.7 percent in 2015, but has fallen 11.2 percent since mid-August.

Disclosure: The author holds no position in the stocks mentioned.