Pending-home sales dropped 2.8 percent from December to January, marking the fifth-consecutive month-over-month decline, according to data released by the National Association of Realtors (NAR) on Thursday.
As a result, the Pending Home Sales Index (PHSI) dropped to 122.8, down from the previous month but up 13 percent year over year and an all-time high for January. All four major geographical regions saw contracts increase year over year.
According to NAR, the PHSI is “a forward-looking indicator of home sales based on contract signings.” An index of 100 represents the level of contract activity that was present in 2001.
NAR Chief Economist Lawrence Yun noted how severely limited inventory is having a negative impact on sales figures. However, a sustained increase in housing permits over the past several months could help alleviate that problem in the months ahead.
“Pending home sales fell in January because there are simply not enough homes to match the demand on the market,” Yun said in a statement. “That said, there has been an increase in permits and requests to build new homes.”
“There will also be a natural seasonal upswing in inventory in spring and summer after few new listings during the winter months,” Yun added. “These trends, along with an anticipated ramp-up in home construction will provide for much-needed supply.”
Yun also pointed out that while pending-home sales are a strong indicator of existing-home sales to come, the timing of the two metrics is not always perfectly aligned for a variety of reasons.
“The two measurements aren’t always perfectly correlated due to varying amounts of time required to close a contract,” Yun said. “This is because a number of fallouts can occur due to a variety of factors, including a buyer not obtaining mortgage financing, a problem with a home inspection of an appraisal issue.”
Yun said that with the economy improving in the wake of vaccine rollouts, as well as “rising inflationary expectations” and budget deficits, the industry should prepare for mortgage rates to increase soon by at least one or two decimal points.
Keller Williams Chief Economist Ruben Gonzalez echoed Yun’s sentiment about mortgage rates in a statement emailed to Inman, noting it may impact buyer demand on some level.
“Mortgage rates are now showing signs of trending upward in response to movements in the 10-year treasury yield,” Gonzalez said. “As the long-run economic outlook improves, long-term treasuries will likely return to more normal yields and away from levels that were giving negative real-returns. This will put some upward pressure on mortgage rates, which have been bouncing around historical lows for months now. This will likely weigh on demand some; however, the market is currently so supply-constrained it will likely take some time for the impacts on affordability to have a noticeable impact on market conditions.”
The South was the only region where pending-home sales increased in January, rising by just 0.1 percent to an index of 151.3, which was up 17.1 percent from the year before.
The PHSI fell the greatest in the West, where it dropped 7.8 percent in January to 104.6, which was still up 11.5 percent year over year.
Meanwhile, the Northeast PHSI fell 7.4 percent to 101.6, an increase of 9.6 percent from January 2020. In the Midwest, pending-home sales dropped 0.9 percent to 113.2, up from 8.6 percent the year before.