January Pending Home Sales Stumble

January saw disappointing existing and new home sales, so why not pending home sales, too?

The National Association of Realtors said pending home sales fell for the first time in three months in January, stumbling by nearly 5 percent to their lowest level in more than three years. All major regions experienced monthly and annual declines in contract signings last month.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, fell by 4.7 percent to 104.6 in January from a downwardly revised 109.8 in December 2017. The index is now 3.8 percent below a year ago and at its lowest level since October 2014 (104.1).

The Northeast saw its index drop by 9.0 percent to 87.0 in January and by 12.1 percent from a year ago. In the Midwest, the index fell by 6.6 percent to 98.2 in January and by 4.1 percent from a year ago. Pending sales in the South declined by 3.9 percent to 121.9 in January and by 1.1 percent from a year ago. The West decreased by 1.2 percent in January to 97.9 and by 2.5 percent from a year ago.

Mark Vitner, senior economist with Wells Fargo Securities, Charlotte, N.C., said cold weather and a low inventory of homes for sale dissuaded home buying.

“The sharp decline this month may be overstated by seasonal factors,” Vitner said. “Home builder surveys indicate that demand remains strong, however a persistently low inventory of homes for sale and harsh temperatures may have kept potential buyers on the sidelines.”

NAR Chief Economist Lawrence Yun pinned the decline on inventories. “The economy is in great shape, most local job markets are very strong and incomes are slowly rising, but there’s little doubt last month’s retreat in contract signings occurred because of woefully low supply levels and the sudden increase in mortgage rates,” he said. “The lower end of the market continues to feel the brunt of these supply and affordability impediments. With the cost of buying a home getting more expensive and not enough inventory, some prospective buyers are either waiting until listings increase come spring or now having to delay their search entirely to save up for a larger down payment.”

NAR said available listings at the end of January was at a record low for the month and 9.5 percent below a year ago.