In a promising start to the year, pending home sales in December 2023 surged by 8.3%, according to data from the National Association of Realtors.
However, those gains were uneven. The Midwest, South, and West regions experienced monthly gains in real estate transactions, and the Northeast recorded a modest decline. But the year-over-year data showed a positive trend across the board, with the Midwest, South, and West seeing notable increases, while the Northeast lagged behind.
The Pending Home Sales Index, a forward-looking gauge of home sales based on contract signings, climbed to 77.3 in December. In a year-over-year comparison, pending transactions saw a 1.3% improvement. For reference, an index value of 100 corresponds to contract activity levels in 2001, when data collection began.
“The housing market is off to a good start this year, as consumers benefit from falling mortgage rates and stable home prices,” said Lawrence Yun, NAR chief economist. “Job additions and income growth will further help with housing affordability, but increased supply will be essential to satisfying all potential demand.”
But even these numbers seem low.
“Consensus projections always seemed on the low side given what we've seen with mortgage applications, another leading indicator of sales activity," First American Deputy Chief Economist Odeta Kushi said. "Average mortgage applications in December increased nearly 8% compared with the previous month, and so far in the month of January have increased approximately 10 percent compared with December. A simple analysis based on the historical relationship between mortgage applications and existing-home sales indicates that existing-home sales should accelerate. While the level of sales activity remains low, the positive growth is a welcome and promising sign for the housing market.”
NAR's Economic Outlook for January 2024 predicts a robust year ahead, with a 13% projected increase in existing-home sales for 2024 compared to 2023, reaching 4.62 million sales. Additionally, 2025 is expected to see a 15.8% increase from the previous year, totaling 5.35 million sales. The annual median home price is anticipated to rise by 1.4% in 2024, reaching $395,100, and increase by 2.6% to $405,200 in 2025.
"Home sales are projected to rise significantly in each of the next two years as the market steadily returns to normal sales activity," Yun added.
The Federal Reserve's anticipated interest rate cuts over the next two years are expected to result in a 30-year fixed mortgage rate fluctuating in the 6% to 7% range for most of the year.
NAR forecasts that due to sizable growth in apartment construction over the past three years, rent growth will calm, which will help bring consumer price inflation to less than 3% in 2024.
Pending Home Sales Regional Breakdown:
Northeast: PHSI dropped by 3% from the previous month to 62.3, marking a 3.9% decline compared to December 2022.
Midwest: Index increased by 5.6% to 80.5 in December, up 4.3% year-over-year.
South: PHSI surged by 11.9% to 93 in December, representing a 1.5% rise compared to the prior year.
West: Index saw a remarkable 14% increase in December, reaching 61, up 1.5% from December 2022.
