Pending home sales dipped 0.3 percent from November to December, the fourth month in a row of declines after the figure’s surge in August, according to data released by the National Association of Realtors (NAR) on Friday.
Despite continuing monthly declines, the Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contract signings, hit a whopping 125.5. That figure marks an all-time high in the PHSI for the month of December, and a 21.4 percent increase year over year.
NAR Chief Economist Lawrence Yun largely attributed the index’s decline to the lack of available inventory for homebuyers.
“Pending home sales contracts have dipped during recent months, but I would attribute that to having too few homes for sale,” Yun said in a statement. “There is a high demand for housing and a great number of would-be buyers, and therefore sales should rise with more new listings.”
As demand for housing has continued at a strong pace across the country, home prices have steadily risen as mortgage rates have remained low to combat price gains.
“This elevated demand without a significant boost in supply has caused home prices to increase and we can expect further upward pressure on prices for the foreseeable future,” Yun said.
Ruben Gonzalez, chief economist at Keller Williams, said in a statement emailed to Inman that continued homebuying demand from demographics less impacted by the pandemic stands to fuel price growth for the next several months.
“The industries most severely impacted are those which typically have not paid wages high enough to enable homeownership, while high-paying sectors have seen far less loss of employment and high earners appear to have increased savings,” Gonzalez said. “This employment stability and increased savings in concert with historically low interest rates have led to a substantial uptick in demand, resulting in a year-over-year increase in existing home sales despite the pandemic. It may be several months before substantial progress is made in terms of available supply, and price growth will likely continue to accelerate until conditions improve.”
The month-over-month decline in pending home sales was largely led by the Midwest, where the PHSI declined by 3.6 percent to 111.7.
The PHSI increased by 3.1 percent in the Northeast to 112, and by 0.1 percent in the South to 150.6. The index in the West, meanwhile, remained constant month over month at 111.3.
On an annual basis, however, the PHSI saw substantial increases in each region, by 22.1 percent in the Northeast, 13.9 percent in the Midwest, 26.6 percent in the South, and 18.9 percent in the West.
Assuming a foreseeable future in which interest rates remain low, Yun said existing home sales would likely hit 6.49 million, which would yield a 15 percent increase from the 5.64 million existing home sales in 2020.
“There will also be slower home price appreciation, likely 6.6 percent, as increased confidence from homebuilders will ultimately lead to an increase in housing starts,” Yun added.