Pending home sales slumped in January, continuing a three-month drop in transactions, according to a report from the National Association of Realtors. Of the four major U.S. regions, only the West registered an increase in month-over-month contract activity. All four regions posted a decline in year-over-year activity, according to the association.
The Pending Home Sales Index, www.nar.realtor/pending-home-sales, a forward-looking indicator of home sales based on contract signings, fell to 109.5 in January, NAR officials said. Year-over-year, transactions decreased 9.5%. An index of 100 is equal to the level of contract activity in 2001.
“With inventory at an all-time low, buyers are still having a difficult time finding a home,” said Lawrence Yun, NAR's chief economist.
Yun said house hunters are contending with a number of additional market issues, including persisting supply constraints, escalating home prices, and rising interest rates. Rates jumped by nearly a percentage point in January from December, further adding to monthly mortgage costs.
“Given the situation in the market — mortgages, home costs and inventory — it would not be surprising to see a retreat in housing demand,” Yun said.
NAR officials expect economic conditions to be volatile in the coming months. The impending conclusion of the Federal Reserve's asset purchase program in March paves the way for higher interest rates. Russia's aggression in Ukraine is also likely to affect global oil supply, imposing further burdens on inflation and bringing about more aggressive rate hikes.
“There's also the possibility that investors may flee toward safer U.S. Treasury bonds, which may result in temporary short-term relief to interest rates,” Yun added.
Realtor.com "Hottest Housing Markets" data in January showed that of the largest 40 metros, the most improved markets over the past year were Orlando-Kissimmee-Sanford, Fla.; Tampa-St. Petersburg, Fla.; Jacksonville, Fla.; Nashville-Davidson-Murfreesboro-Franklin, Tenn., and Las Vegas-Henderson-Paradise, Nev.
Month-over-month, the Northeast pending home sales index dropped 12.1% to 84.3 in January, a 16.7% decrease from a year ago. In the Midwest, the index fell 5.9% to 104.4 last month, down 5.9% from January 2021
Pending home sales transactions in the South slipped 6.3% to an index of 134.6 in January, down 8.7% from January 2021. The index in the West increased 1.5% in January to 95.2, down 9.7% from a year prior, according to the report.
A sale is listed as pending when the contract has been signed but the transaction has not closed, even though the sale usually is finalized within one or two months of signing, NAR officials said.
Pending contracts are good early indicators of upcoming sales closings, but the amount of time between pending contracts and completed sales are not identical for all home sales. Variations in the length of the process from pending contract to closed sale can be caused by issues such as buyer difficulties with obtaining mortgage financing, home inspection problems, or appraisal issues, according to NAR officials
The index is based on a sample that covers about 40% of multiple listing service data each month. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.
The association's index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.
