The Pending Home Sales Index fell 2.8 percent from the previous month to 122.8, but rose 13 percent from the previous year and marked an all-time high in January.
According to the National Association of Realtors (NAR) released Thursday, outstanding home sales fell 2.8 percent from December through January. This is the fifth decline in a row compared to the previous month.
As a result, the Pending Home Sales Index (PHSI) fell to 122.8 month-on-month, but rose 13 percent year-over-year to hit an all-time high in January. In all four major geographic regions, contracts increased year over year.
According to NAR, the PHSI is “a forward-looking indicator of home sales based on contract signing”. An index of 100 represents the level of contract activity that existed in 2001.
Lawrence Yun, chief economist at NAR, noted that severely limited inventory levels are having a negative impact on sales. However, a sustained surge in housing permits in recent months could help resolve this issue in the months ahead.
“Pending home sales decreased in January because there simply weren’t enough homes to meet market demand,” Yun said in a statement. “That means there has been an increase in permits and applications to build new houses.”
“After some new offerings in the winter months, there will also be a natural seasonal inventory surge in the spring and summer,” added Yun. “These trends, along with an expected increase in housing construction, will provide much-needed supplies.”
Yun also noted that while pending home sales are a strong indicator of future sales of existing properties, the timing of the two metrics is not always perfectly aligned for various reasons.
“The two measurements are not always perfectly correlated because of the different time it takes to complete a contract,” said Yun. “This is because a number of defaults can occur due to a variety of factors, including a buyer unable to get mortgage finance, a home inspection problem, a valuation problem.”
Yun said the industry should prepare for mortgage rates to rise by at least one or two decimal places soon, given the improving economy with the introduction of vaccines, as well as “rising inflation expectations” and budget deficits.
Keller Williams chief economist Ruben Gonzalez reiterated Yun’s assessment of mortgage rates in a statement emailed to Inman, noting that this could affect buyer demand to some extent.
“Mortgage rates are now showing signs of an upward trend in response to movements in the 10-year Treasury yield,” said Gonzalez. “As the long-term economic outlook improves, long-term government bonds are likely to return to more normal yields and move away from the levels that generated negative real returns. This will put some upward pressure on mortgage rates, which have been at historic lows for months. This is likely to weigh on demand somewhat; However, right now the market is so tight that it will likely take some time for the affordability impact to have a noticeable impact on market conditions. “
The south was the only region where home sales rose just 0.1 percent in January to an index of 151.3, up 17.1 percent year over year.
The PHSI fell the hardest in the west, where it fell 7.8 percent to 104.6 in January, up 11.5 percent from a year earlier.
The Northeast PHSI fell 7.4 percent to 101.6, up 9.6 percent from January 2020. In the Midwest, outstanding home sales fell 0.9 percent to 113.2, down from 8.6 Percent last year.
Email Lillian Dickerson