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Demand for Homes Outpaces Current Supply Available

Pending home sales in January dipped to their lowest level in a year, according to the National Association of Realtors (NAR). This is deemed to be the result of limited inventory.

In January, prospective homeowners faced numerous obstacles in their quest to buy a home, Lawrence Yun, NAR chief economist said. "The significant shortage of listings last month along with deteriorating affordability as the result of higher home prices and mortgage rates kept many would-be buyers at bay," he said.

This month, available homes are selling at a much faster rate than a year ago, he said. "Buyer traffic is easily outpacing seller traffic in several metro areas, In the West, it's not uncommon to see a home come off the market within a month."

Yun’s comments are based on the Pending Home Sales Index, a forward-looking indicator based on contract signings. 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.

This index shows that signings decreased 2.8 percent to 106.4 in January from an upwardly revised 109.5 in December 2016. Although last month's index reading is 0.4 percent above last January, it is the lowest since then.

Although interest in buying a home is the highest it has been since the Great Recession and home shoppers are feeling more confident about their financial situation, they are dealing with challenging supply shortages in many areas, resulting in higher prices. However, Yun pointed out that since job growth is strong in most of the country and the stock market has seen record gains in recent months, he thinks that these factors bode favorably for increased sales in coming months,

"January's accelerated price appreciation  is concerning because it's more than double the pace of income growth, and mortgage rates are up considerably from six months ago," Yun said. "Especially in the most expensive markets, prospective buyers will feel this squeeze to their budget and will likely have to come up with additional savings or compromise on home size or location."

Existing-home sales are forecast to be around 5.57 million this year, an increase of 2.2 percent from 2016 (5.45 million). The national median existing-home price this year is expected to increase around 4 percent. In 2016, existing sales increased 3.8 percent and prices rose 5.1 percent.

"Sales got off to a fantastic start in January, but last month's retreat in contract signings indicates that activity will likely be choppy in coming months as buyers compete for the meager number of listings in their price range," Yun added.

The PHSI in the Northeast rose 2.3 percent to 98.7 in January, and is now 3.6 percent above a year ago. In the Midwest, the index fell 5.0 percent to 99.5 in January and is now 3.8 percent lower than in January 2016.

Pending home sales in the South inched higher (0.4 percent) to an index of 122.5 in January and are now 2.0 percent above last January. The index in the West dropped 9.8 percent in January to 94.6 and is now 0.4 percent lower than a year ago.

About Author: Sandra Lane

Sandra Lane has extensive experience covering the default servicing industry. She contributed regularly to DS News' predecessor, REO Magazine, from 2004 to 2006, covering local market trends, the effects of macroeconomic shifts on market conditions, and "big-picture" analyses of industry-driving indicators. But her understanding of the mortgage and real estate business extends even beyond those pre-crisis days. She is a former real estate broker and grew up in what she calls "a real estate family." A journalism graduate of the University of North Texas, she has written articles for various newspapers and trade journals, as well as company communications for several major corporations.
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