Pending home sales improved in January to kick off the year according to the Pending Home Sales Index (PHSI) which found pending sales improved 8.1% to an index of 82.5.
The National Association of Realtors (NAR) publishes the PHSI on a monthly basis due to the information's value as a forward-looking indicator of home sales based on contract signings. The index was benchmarked to 100 based on market activity in 2001.
While up on a monthly basis, pending transactions dropped by 24.1%, and all four major U.S. regions saw a year-over-year drop in transactions in January 2023.
“Buyers responded to better affordability from falling mortgage rates in December and January,” said NAR Chief Economist Lawrence Yun.
The NAR predicts the economy will continue to post better-than-expected growth through 2024. They also predict that the 30-year fixed-rate mortgage will drop to an average of 6.1% in 2023 and 5.4% in 2024.
According to Yun, an improving interest rate environment and job gains will set the stage for annual existing-home sales to drop 11.1% in 2023 to a total of 4.47 million units before jumping 17.7% in 2024 (5.26 million units). The NAR projects new-home sales will fall 3.7% year-over-year in 2023 before growing 19.4% in 2024.
“Home sales activity looks to be bottoming out in the first quarter of this year, before incremental improvements will occur,” Yun said. “But an annual gain in home sales will not occur until 2024. Meanwhile, home prices will be steady in most parts of the country with a minor change in the national median home price.”
Yun also expects median existing-home prices to remain mostly stable throughout 2023 further predicting a decrease of 1.6% during the year to an average price of $380,100 before growing 3.1% next year. He also forecasted median new-home prices will increase by 1.3% in 2023, to $461,000, and increase by 2.8% in 2024, to $474,000, due to higher costs of land and construction materials.
The Northeast PHSI rose 6.0% from last month to 68.7, a decline of 19.8% from January 2022. The Midwest index grew 7.9% to 83.3 in January, a drop of 21.1% from one year ago.
The South PHSI increased 8.3% to 99.2 in January, dipping 24.7% from the prior year. The West index elevated 10.1% in January to 66.2, diminishing 29.3% from January 2022. “An extra bump occurred in the West region because of lower home prices, while gains in the South were due to stronger job growth in that region,” Yun added.
Realtor.com Economic Data Analyst Hannah Jones also commented on the report.
“Contract signings continued to thaw in January, increasing 8.1% relative to December 2022, the largest monthly increase since June 2020. However, pending home sales were still down 24.1% compared to last January,” Jones said. “By the end of January, the rate on a 30-yr fixed rate mortgage was 6.13%, the lowest level since mid-September 2022. However, home prices remained 8.1% higher than the previous year which, coupled with mortgage rates up more than 250 basis points in the same time period, meant that buyers were still positioned to pay much more for a home than a year prior. Despite ongoing affordability constraints, contract signings picked up in all regions, led by a 10.1% month-over-month increase in the West.”
“Mortgage rates took a breath in December and January before resuming their climb in February, reaching 6.5%, the highest level of the new year,” she continued. “At the current rate, the monthly payment on a median-priced home would be 45.1% ($630) higher than at the same time last year. This is a $100 improvement over January, but many buyers are still holding off, waiting to see if prices or rates give a bit before getting into the market.”
“Last year’s persistent increase in both mortgage rates and home prices pushed many would-be home purchasers out of the market, resulting in decreased seller and builder activity, which limited options for buyers still in the market. New listings were at the lowest level in the last six years in January as sellers stayed on the sidelines, waiting to see buyers return, before placing their homes for sale.”
“However, the first month of the year brought glimmers of hope as year-over-year declines in both Existing and New home sales slowed, and buyer sentiment improved slightly,” Jones concluded. “The spring season typically brings increased buyer demand and therefore competition as homebuying season kicks off. This spring is expected to be less active than the last couple of years as affordability challenges persist.”
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