Pending Home Sales End 2016 on Uptick

Pending home sales picked up in December as increases in the South and West offset weakening activity in the Northeast and Midwest, the National Association of Realtors reported yesterday.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased by 1.6 percent to 109.0 in December from 107.3 in November and rose by 0.3 percent from a year ago (108.7). Pending sales fell by 2.5 percent in November.

Pending home sales in the South, the largest region, rose by 2.4 percent to 121.3 in December and by 0.5 percent from a year ago. The West saw a 5.0 percent increase in December to 106.1 and is now 5.0 percent higher than a year ago.

Pending sales in the Northeast declined by 1.6 percent to 96.4 in December and by 1.2 percent from a year ago. In the Midwest the index decreased by 0.8 percent to 102.7 in December and by 3.4 percent from a year ago.

Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C., noted sales have been buffeted by swings in mortgage rates following the election and are up only modestly year over year.

“Low inventory levels have continued to fuel price gains, as the median price of an existing home rose 5.2 percent in 2016,” Vitner said. “Moreover, home sales have increasingly occurred at the high-end of the market, with sales of homes priced under $100,000 down nearly 12 percent relative to a year ago. The lack of inventory at lower price points and higher borrowing costs will likely continue to hold back first-time homebuyers.”

NAR Chief Economist Lawrence Yun said the main storyline in the early months of 2017 will be if supply can meaningfully increase to keep price growth at a moderate enough level for households to absorb higher borrowing costs. “Sales will struggle to build on last year’s strong pace if inventory conditions don’t improve,” he said.

Yun noted a large portion of overall supply right now is at the upper end of the market. “The dismal number of listings in the affordable price range is squeezing prospective first-time buyers the most,” he said. “As a result, young households are missing out on the wealth gains most homeowners have accrued from the 41 percent cumulative rise in existing home prices since 2011.”