Pending home sales continue to sag

Pending home sales fell for a second straight month, according to the National Association of Realtors (NAR).

The Pending Home Sales Index (PHSI), released today by the NAR, fell 3.8% to 117.7 in December 2021 as year-over-year transactions fell 6.9%. An index of 100 is equal to the level of contract activity in 2001.

The PHSI is a forward-looking indicator of home sales based on contract signings. 

“Pending home sales faded toward the end of 2021, as a diminished housing supply offered consumers very few options,” said Lawrence Yun, NAR chief economist. “Mortgage rates have climbed steadily the last several weeks, which unfortunately will ultimately push aside marginal buyers.”

Despite the slowdown in December, Yun says last year was an overall great period for housing in terms of sales and price appreciation.

“The market will likely endure a minor reduction in sales as mortgage rates continue to edge higher,” he added.

Yun also said that he forecasts the 30-year fixed mortgage rate to jump to 3.9% by the fourth quarter and existing-home sales to dip by 2.8% to 5.95 million units.

Additionally, with December 2021 marking a third straight month of increased home construction, Yun expects housing inventory to continue improving and contribute to slower home price growth in 2022. 

The economist forecasts housing starts to rise to 1.65 million units and home prices to increase 5.1%.

“The combination of a more measured demand and rising supply will bring housing prices better in line with wage growth,” Yun said.

Here’s how pending home sales performed regionally on a month-over-month basis:

• The Northeast PHSI fell 1.2% to 98.2 in December, a 10.5% decline from a year ago.
• In the Midwest, the index dropped 3.7% to 112.8 last month, down 1.2% from December 2020.
• Pending home sales transactions in the South slid 1.8% to an index of 145.2 in December, down 3.9% from December 2020. 
• The index in the West decreased 10.0% in December to 95.0, down 16.2% from a year prior.

The NAR also reported that data in December showed that out of the largest 40 metros, the most improved markets over the past year were Orlando-Kissimmee-Sanford, Fla.; Tampa-St. Petersburg, Fla.; Jacksonville, Fla.; Dallas-Fort Worth-Arlington, Texas; and Denver-Aurora-Lakewood, Colo.