Pending home sales slumped in January, continuing what is now a three-month drop in transactions, the National Association of Realtors reported this past week.
Of the four major U.S. regions, only the West registered an increase in month-over-month contract activity. All four regions posted a decline in year-over-year activity.
The Pending Home Sales Index (PHSI),* www.nar.realtor/pending-home-sales, a forward-looking indicator of home sales based on contract signings, fell 5.7 percent to 109.5 in January. Year-over-year, transactions decreased 9.5 percent. An index of 100 is equal to the level of contract activity in 2001.
“With inventory at an all-time low, buyers are still having a difficult time finding a home,” said Lawrence Yun, NAR’s chief economist.
Alongside persistent supply constraints, Yun said house hunters are contending with a number of additional market issues, including escalating home prices and rising interest rates. Rates jumped by nearly a percentage point in January from December, further adding to monthly mortgage costs.
“Given the situation in the market – mortgages, home costs and inventory – it would not be surprising to see a retreat in housing demand,” Yun said.
NAR expects economic conditions to be volatile in the coming months. The impending conclusion of the Federal Reserve’s asset purchase program in March paves the way for higher interest rates. Russia’s aggression in Ukraine is also likely to affect global oil supply, imposing further burdens on inflation and bringing about more aggressive rate hikes.
“There’s also the possibility that investors may flee toward safer U.S. Treasury bonds, which may result in temporary short-term relief to interest rates,” Yun added.
Realtor.com’s Hottest Housing Markets data in January showed that of the largest 40 metros, the most improved markets over the past year were Orlando-Kissimmee-Sanford, Fla.; Tampa-St. Petersburg, Fla.; Jacksonville, Fla.; Nashville-Davidson-Murfreesboro-Franklin, Tenn.; and Las Vegas-Henderson-Paradise, Nev.
January pending home sales regional breakdown
Month-over-month, the Northeast PHSI dropped 12.1 percent to 84.3 in January, a 16.7 percent decrease from a year ago. In the Midwest, the index fell 5.9 percent to 104.4 last month, down 5.9 percent from January 2021.
Pending home sales transactions in the South slipped 6.3 percent to an index of 134.6 in January, down 8.7 percent from January 2021. The index in the West increased 1.5 percent in January to 95.2, down 9.7 percent from a year prior.
The National Association of Realtors is America’s largest trade association, representing more than 1.5 million members involved in all aspects of the residential and commercial real estate industries.
*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. 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.
Pending contracts are good early indicators of upcoming sales closings. However, the amount of time between pending contracts and completed sales are not identical for all home sales. Variations in the length of the process from pending contract to closed sale can be caused by issues such as buyer difficulties with obtaining mortgage financing, home inspection problems, or appraisal issues.
The index is based on a sample that covers about 40 percent 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 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.
Existing-Home Sales for February will be reported March 18. The next Pending Home Sales Index will be March 25.
Information about NAR is available at www.nar.realtor. This and other news releases are posted on the NAR Newsroom at www.nar.realtor/newsroom. Statistical data in this release, as well as other tables and surveys, are posted in the “Research and Statistics” tab.