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According to the National Association of Realtors (NAR), pending home sales in the month of November were identical to those reported in October, as NAR’s Pending Home Sales Index (PHSI)–a forward-looking indicator of home sales based on contract signings–remained at 71.6 in November. Year-over-year, pending transactions were down 5.2%. An Index reading of 100 is equal to the level of contract activity in 2001.
NAR in its analysis found that the Northeast, Midwest, and West all posted monthly gains in transactions, while the South recorded a loss. All four U.S. regions registered year-over-year declines in transactions.
"Although declining mortgage rates did not induce more homebuyers to submit formal contracts in November, it has sparked a surge in interest, as evidenced by a higher number of lockbox openings," said Lawrence Yun, NAR Chief Economist.
The Northeast PHSI rose 0.8% from last month to 64.4, a drop of 6.4% from November 2022. The Midwest index increased 0.5% to 76.2 in November, down 2.2% from one year ago.
The South PHSI declined 2.3% to 83.2 in November, decreasing 6.5% from the prior year. The West index climbed 4.2% in November to 54.0, falling 4.9% from November 2022.
"With mortgage rates falling further in December–leading to savings of around $300 per month from the recent cyclical peak in rates–home sales will improve in 2024," Yun said.
This week, Freddie Mac reported the final reading of its Primary Mortgage Market Survey (PMMS) showing the 30-year fixed-rate mortgage (FRM) averaging 6.61%. This marked a continued downward trend in the fixed-rate mortgage after nearing the 8%-mark eight weeks ago.
Another positive swing in favor of buyers is the rise in builder confidence, as the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) reported a rise in builder confidence, signaling improving housing conditions heading into the new year. The Index found builder confidence in the market for newly built single-family homes rose three points to 37 in December, reversing the trend of the previous four months.
“With mortgage rates down roughly 50 basis points over the past month, builders are reporting an uptick in traffic as some prospective buyers who previously felt priced out of the market are taking a second look,” said NAHB Chairman Alicia Huey. “With the nation facing a considerable housing shortage, boosting new home production is the best way to ease the affordability crisis, expand housing inventory, and lower inflation.”
Realtor.com Chief Economist Danielle Hale added, “Pending home sales or contract signings measure the earliest formal step in the home sale transaction, namely, the point when a buyer and seller have agreed on the price and terms. Pending home sales tend to lead existing-home sales by roughly one-to-two months. Today’s data signal that home sales activity could register better than expected in Realtor.com’s 2024 Housing Forecast if mortgage rates are able to hold on to the improvement garnered in the last two months, which has been faster than anticipated. With home prices likely to remain high, mortgage rates will be an important determinant of both affordability and overall activity. Meanwhile, households not ready to wade into the purchase market continue to benefit from improved leasing conditions. The national median rent fell again in November, marking the seventh month of annual decline.”
NAR’s PHSI 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. An Index reading 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.
