While down a bit compared to Dec., pending sales hit a Jan. record high. The South region, which includes Fla., was the sole area to see a modest month-to-month rise.
WASHINGTON – In January, pending home sales took a step backward as a lack of inventory held back prospective buyers, according to the National Association of Realtors® (NAR).
The South – one of four regions that includes Florida – was the lone region with a modest gain month-to-month. The other three U.S. regions experienced month-over-month decreases in January.
However, pending sales increased in year-to-year comparison nationally and in all four regions, including two that increased by double digits. The top region, the South again, rose by 17.1% year-to-year.
The Pending Home Sales Index (PHSI) – a forward-looking indicator of home sales based on contract signings – dropped 2.8% to 122.8 in January. Year-over-year, contract signings rose 13.0%. An index of 100 is equal to the level of contract activity in 2001.
“Pending home sales fell in January because there are simply not enough homes to match the demand on the market,” says Lawrence Yun, NAR’s chief economist. “That said, there has been an increase in permits and requests to build new homes.”
There has been a consistent rise in housing permits for single-family homes for eight straight months. According to Yun, it’s a good sign that the supply-and-demand imbalance in the residential real estate market could be easing, as soon as mid-2021.
“There will also be a natural seasonal upswing in inventory in spring and summer after few new listings during the winter months,” he says. “These trends, along with an anticipated ramp-up in home construction, will provide much-needed supply.”
Following a week where January’s existing-home sales increased, Yun says that pending contracts are a great early indicator for upcoming closed sales, but he stressed that the timing of the relationship between existing-home sales and pending home sales may not be in lockstep.
“The two measurements aren’t always perfectly correlated due to varying amounts of time required to close a contract,” Yun says. “This is because … fallouts can occur due to a variety of factors, including a buyer not obtaining mortgage financing, a problem with a home inspection or an appraisal issue.”
The economy is showing promising signs of improvement, according to Yun, especially in light of many millions of Americans already receiving a COVID-19 vaccination. Still, he cautions that longer-term interest rates will soon rise, partly from better economic prospects on the horizon, but also due to rising inflationary expectations and higher budget deficits.
“I don’t foresee mortgage rates jumping to an alarming level, but we should prepare for a rise of at least a decimal point or two,” Yun says.
January pending sales regional breakdown: The Northeast PHSI fell 7.4% to 101.6 in January, a 9.6% rise from a year ago. In the Midwest, the index declined 0.9% to 113.2 last month, up 8.6% from January 2020.
Pending home sales transactions in the South inched up 0.1% to an index of 151.3 in January, up 17.1% from January 2020. The index in the West dropped 7.8% in January, to 104.6, up 11.5% from a year prior.
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