January Pending Home Sales Fall to Lowest Level in Year
Pending home sales fell in January to their lowest level in a year as tight inventories hampered contract activity in the West and Midwest, the National Association of Realtors reported yesterday.
The NAR Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased by 2.8 percent to 106.4 in January from an upwardly revised 109.5 in December. The index rose by 0.4 percent from a year ago but fell to its lowest level since then.
Declines in the West and Midwest drove the overall decrease. Pending home sales in the West fell by 9.8 percent in January to 94.6 and by 0.4 percent from a year ago. In the Midwest, the index fell by 5.0 percent to 99.5 in January and by 3.8 percent from a year ago.
The largest region, the South saw an 0.4 percent to 122.5 and rose by a 2 percent from a year ago, but it wasn’t enough to offset the West/Midwest declines. In the Northeast, the index rose by 2.3 percent to 98.7 from December and by 3.6 percent from a year ago.
Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C., said low inventory and higher mortgage rates, along with rough weather in the West, restrained potential homebuyers.
“The weaker reading suggests some downside risk to upcoming existing home sales,” Vitner said. “Upward revisions to the prior month’s data reveal a slightly stronger trend but also hint that higher interest rates may have taken a heavier toll on sales. The housing data are notoriously volatile during the winter and too much should not be made of this weak report. Mortgage rates have reversed part of their post-election spike recent and we expect sales to turn up this spring.”
NAR Chief Economist Lawrence Yun said home shoppers in January faced numerous obstacles in their quest to buy a home. “The significant shortage of listings last month along with deteriorating affordability as the result of higher home prices and mortgage rates kept many would-be buyers at bay,” he said. “Buyer traffic is easily outpacing seller traffic in several metro areas and is why homes are selling at a much faster rate than a year ago. Most notably in the West, it’s not uncommon to see a home come off the market within a month.”
Yun noted interest in buying a home is the highest it has been since the Great Recession. “Households are feeling more confident about their financial situation, job growth is strong in most of the country and the stock market has seen record gains in recent months,” he said. “While these factors bode favorably for increased sales in coming months, buyers are dealing with challenging supply shortages that continue to run up prices in many areas.”
Yun added while existing home sales got off to a “fantastic start” in January, the retreat in contract signings indicates that activity “will likely be choppy in coming months as buyers compete for the meager number of listings in their price range.”
