The latest Pending Home Sales Index from the National Association of Realtors (NAR)—an indicator for the housing sector, based on pending sales of existing homes in January—declined for the third month in a row, falling to 5.7% to 109.5 in January. Year-over-year, signings fell 9.5%. According to NAR, an Index reading of 100 is equal to the level of contract activity in 2001.
NAR defines a sale is listed as pending when the contract has been signed, but the transaction has not closed, though the sale usually is finalized within one or two months of signing.
“With inventory at an all-time low, buyers are still having a difficult time finding a home,” said Lawrence Yun, NAR’s Chief Economist.
Lund continued to say that alongside supply constraints, buyers are dealing with other issues such as affordability concerns and rising interest rates. Rates jumped by nearly a point in January, driving up the price of 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 expects “volatile” market conditions in the upcoming months; the conclusion of the Federal Reserve’s asset purchase program happens in March, which lays the groundwork for higher interest rates. The recent invasion of Ukraine by Russia is likely send additional shockwaves through the economy in the areas of oil supply, inflation, and 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.
Regionally, contract signings fell in three of the major regions, but did see an increase in the west.
Month-over-month, the Northeast PHSI 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.
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