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NAR: Pending Home Sales Rose In December

David Krechevsky
Jan 27, 2023
NAR Pending Home Sales January 2023

Redfin report also shows year-over-year improvement.

  • Pending home sales improved for the first time since May, up 2.5% from November.
  • Pending home sales fell 26% year over year during the four weeks ended Jan. 22, the smallest drop in more than three months.

Pending home sales are showing signs of a turnaround, according to two different reports released Friday.

The National Association of Realtors (NAR) reported that pending home sales increased in December for the first time since May 2022 — following six consecutive months of declines. At the same time, Redfin said pending home sales fell 26% year over year during the four weeks ended Jan. 22, the smallest drop in more than three months.

In its report, the NAR said the Northeast and Midwest recorded month-over-month reductions in pending home sales, while the South and West posted monthly gains. All four U.S. regions saw year-over-year decreases in transactions, with the West experiencing the largest decline at 37.5%, it said.

The Pending Home Sales Index (PHSI) — a forward-looking indicator of home sales based on contract signings — improved 2.5% to 76.9 in December, the NAR said. Year-over-year, pending transactions, it said, fell 33.8%. An index of 100 is equal to the level of contract activity in 2001.

“This recent low point in home sales activity is likely over,” said NAR Chief Economist Lawrence Yun. “Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market.”

By Region

The Northeast PHSI dropped 6.5% from last month to 64.7, a decrease of 32.5% from December 2021, the NAR said. The Midwest index shrank 0.3% to 77.6 in December, a decline of 30.1% from one year ago.

The South PHSI rose 6.1% to 94.1 in December, dropping 34.5% from the prior year, while the West index advanced 6.4% in December to 58.6, decreasing 37.5% from December 2021.

“The new normal for mortgage rates will likely be in the 5.5% to 6.5% range,” Yun said. “Job gains will steadily become important in driving local home-sales markets. The South, in particular, is set to outperform the rest of the country, thanks primarily to better job market conditions in this part of the country compared to other regions.” Economic Data Analyst Hannah Jones said December’s contract signings reflected the housing market’s ongoing struggle with affordability

“Ample housing demand remained frozen by high prices and mortgage rates,” she said. “Though mortgage rates fell as low as 6.27% in December, down 0.8 percentage points from November’s high, home prices remained elevated, up 8.4% compared to the previous year.”

She noted that as mortgage rates have continued to fall, dropping to levels not seen since September, it offers “buyers the opportunity to dip a toe back into the market. Even with December’s retreat though, mortgage rates remained more than 3 percentage points higher than the previous year, which means that the mortgage payment for a median-priced home was $730 higher than in December 2021. As a result, many buyers stuck to the sidelines, waiting for conditions to improve.”

Redfin Report

In its report, Redfin, the technology-powered real estate brokerage, said pending sales began rising on a month-over-month basis in December as buyers started returning to the market, encouraged by their increased negotiating power and mortgage rates that have declined to 6.1% from their 7% peak. 

It said that signals the recent increase in early-stage homebuyer demand — mortgage-purchase applications are up 28% since November and Redfin home-tour requests are on the rise — is starting to translate into sales.

More demand from buyers and less supply from homeowners — new listings of homes for sale are down 18% from a year ago, though that’s a smaller drop than recent weeks — is holding prices steady, it said. The median U.S. home-sale price rose 1.1% year over year to $350,000, the biggest increase in over a month. 

On a local level, the number of metros where prices are falling from a year earlier is shrinking, Redfin said. Home prices declined in 17 of the 50 most populous U.S. metros, with the biggest drops in the Bay Area, down from 20 at the beginning of January.

Redfin said its agents are reporting that mortgage rates dipping nearly a full percentage point over the last two months is bringing back some sidelined buyers and attracting new ones. They’re noticing an increase in interest from clients, including requests for tours, and reporting that some homes that have been on the market for months are finally going under contract.

“Homebuyers are starting to feel more confident as mortgage rates tick down closer to 6% than 7% and the overall economy chugs along with surprising resilience, especially in the labor market,” said Redfin Economics Research Lead Chen Zhao. “Steadily cooling inflation is likely to prevent mortgage rates from jumping back up. When rates were seesawing up and down in the fall, many buyers dropped out because they could wake up the day after finding their dream home to a three-digit increase in their potential monthly payment. Now they have a better sense of how far their budget will go in which neighborhoods and which homes they can afford.”

Leading indicators of homebuying activity:

  • For the week ended Jan. 26, 30-year mortgage rates dropped to 6.13%, hitting their lowest level since September. The daily average was 6.18% on January 25.
  • Mortgage-purchase applications during the week ended Jan. 20 increased 3% from a week earlier and 28% from their early-November trough, seasonally adjusted. Purchase applications were down 39% from a year earlier.
  • The seasonally adjusted Redfin Homebuyer Demand Index — a measure of requests for home tours and other homebuying services from Redfin agents — was up 6% from a month earlier during the four weeks ending January 22. It was down 29% from a year earlier.
  • Google searches for “homes for sale” were up about 40% from their November low during the week ending January 21, but down about 21% from a year earlier. Key housing market takeaways for 400+ U.S. metro areas:

Key Housing Market Takeaways

Unless otherwise noted, this data covers the four-week period ending January 22. Redfin’s weekly housing market data goes back through 2015.

  • The median home-sale price was $349,950, up 1.1% year over year, the biggest gain in over a month.
  • The median asking price of newly listed homes was $367,450, up 3.8% year over year.
  • Among the 50 most populous U.S. metros, sale prices fell in 17, with the biggest drops in San Francisco (-9.3% YoY); Oakland, Calif. (-6.5%); Austin, Texas (-6.3%); Detroit (-5.5%);  and San Jose, Calif. (-5.4%). Prices increased most in West Palm Beach, Fla. (13.5%); Nashville, Tenn. (9.6%); Milwaukee (9.2%); Indianapolis (7.8%); and Montgomery County, Pa. (7.7%).
  • The monthly mortgage payment on the median-asking-price home was $2,323 at the current 6.13% mortgage rate. That’s down nearly $200 from the October peak. Monthly mortgage payments are up 29% from a year ago.
  • Among the 50 most populous U.S. metros, pending sales fell most in Las Vegas (-63.2% YoY); Phoenix (-56%); Nashville (-52.5%); Jacksonville, Fla. (-52.1%); and Austin (-50.7%). Pending sales rose in one metro: Cincinnati (+11.7%).
  • New listings of homes for sale fell 18.3% year over year, the smallest decline in nearly three months.
  • Active listings (the number of homes listed for sale at any point during the period) were up 23.6% from a year earlier.
  • Months of supply — calculated by dividing the number of active listings by closed sales — was 4.4 months, up from 4 months a week earlier and 2.1 months a year earlier.
  • Homes that sold were on the market for a median of 47 days. That’s up from 32 days a year earlier and the record low of 18 days set in May.
  • 21% of homes sold above their final list price, down from 40% a year earlier and the lowest level since March 2020.
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