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Despite interest rates being at their lowest level of 2014, pending home sales cooled in December, but remained above year-over-year levels for the fourth consecutive month, according to the National Association of Realtors (NAR). All major regions experienced declines in December. The Pending Home Sales Index (PHSI), a forward-looking indicator based on contract signings, decreased 3.7 percent to 100.7 in December from a slightly downwardly revised 104.6 in November, but is 6.1 percent above December 2013 (94.9). Despite last month¹s decline (the largest since December 2013 at 5.8 percent), the index experienced its highest year-over-year gain since June 2013 (11.7 percent).
Lawrence Yun, NAR chief economist, says fewer homes available for sale and a slight acceleration in prices likely led to December¹s decline in contract signings.
"Total inventory fell in December for the first time in 16 months, resulting in fewer choices for buyers and a modest uptick in price growth in markets throughout the country," Yun said. "With interest rates at lows not seen since early 2013, the strength in existing-sales in upcoming months will largely depend on the willingness of current homeowners to realize their equity gains from the past couple years and trade up. More jobs, increasing consumer confidence, less expensive mortgage insurance and new low down payment programs coming into the marketplace will likely lead to more demand from first-time buyers."
The PHSI in the Northeast experienced the largest decline, dropping 7.5 percent to 82.1 in December, but is still 6.3 percent above a year ago. In the Midwest, the index decreased 2.8 percent to 97.1 in December, but is 1.9 percent above December 2013. Pending home sales in the South declined 2.6 percent to an index of 116.6 in December, but are 8.6 percent above last December. The PHSI in the West fell 4.6 percent in December to 94.0, but is 6.3 percent above a year ago.
Total existing-homes sales in 2015 are forecast to be around 5.26 million, an increase of 6.6 percent from 2014. The national median existing-home price for all of this year is expected to increase between 4 and 5 percent. In 2014, existing-home sales declined 3.1 percent and prices rose 5.8 percent.