Pending home sales stumble in January

The National Association of Realtors (NAR) reports the pending home sales receded in January, largely due to a supply shortage holding pack potential buyers.

The Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contract signings, fell 2.8% to 122.8 in January. Year-over year contract singings increased 13%, however.

A diminishing housing supply continues to hold back the housing market from moving fully forward. In the meantime, prices continue to move upward. This report from the NAR follows yesterday's news that new home sales increased 4.3% in January.

“Pending home sales fell in January because there are simply not enough homes to match the demand on the market,” said Lawrence Yun, NAR chief economist. “That said, there has been an increase in permits and requests to build new homes.”

An 8-month streak of increases in permits for single-family homes is a good sign, according to Yun. 

“There will also be a natural seasonal upswing in inventory in spring and summer after few new listings during the winter months,” Yun said. “These trends, along with an anticipated ramp-up in home construction will provide for much-needed supply.”

Here’s how the PHIS breaks down by region:

• The Northeast PHSI fell 7.4% to 101.6 in January, a 9.6% rise from a year ago. 
• In the Midwest, the index declined 0.9% to 113.2 last month, up 8.6% from January 2020.
• Pending home sales transactions in the South inched up 0.1% to an index of 151.3 in January, up 17.1% from January 2020. 
• The index in the West dropped 7.8% in January, to 104.6, up 11.5% from a year prior.

As the economy shows signs of improvement as many Americans receive the COVID-19 vaccination, Yun cautions that longer-term interest rates will soon rise.

“I don’t foresee mortgage rates jumping to an alarming level, but we should prepare for a rise of at least a decimal point or two,” he said.