Pending home sales decrease due to anticipated dip in demand

Market Trend

Pending home sales decrease due to anticipated dip in demand

New home transactions continued to sag in January, with fewer homes pending sales than a month earlier.

Home contracts signed last month clocked in at 5.7 percent lower than in December, and 9.5 percent lower than January 2021, according to pending-home sales data released Friday by the National Association of Realtors.

The market has now undergone a three-month decline in the number of pending agreements between buyers and sellers, a leading indicator of how many home sales may be finalized in the coming weeks.

In a news release accompanying the report, NAR Chief Economist Lawrence Yun said that conditions remain tough for buyers. A combination of factors could make the market even less appetizing for them going forward, he added.

“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 in a statement.

Forecasters for Fannie Mae largely concur, expecting the sale of existing homes to fall by 4.6 percent this year even as a 15 percent rise in new home sales offsets part of that difference, according to Fannie Mae’s latest report.

The overall change in sales for new and existing homes would amount to a 2.4 percent drop in transactions, by Fannie Mae’s calculations.

To some extent a decline in activity was expected, as the boom in home demand during the pandemic was driven in part by some short-term factors that were unlikely to go on forever.

After mortgage rates reached their lowest levels ever in January of 2021, they started to rise again, and are expected to continue climbing for the foreseeable future.

Stimulus money from the government’s COVID-19 relief packages that some Americans used to help with down payments may be drying up.

And the combination of rising prices and interest rates has been pushing mortgage payments into less affordable territory, unlike what played out during the first year of the pandemic. Yun points out that this is likely to continue with the Federal Reserve’s asset-purchase program set to end in March.

But there are factors that complicate these projections, Yun said, from the Fed’s response to inflation to the economic spillover from Russia’s ongoing invasion of Ukraine.

“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 said in the release.

But even if as the market continues to cool somewhat, transactions remain well above normal levels for the time being.

NAR’s Pending-Home Sales Index remained at 109.5 in January, signifying higher contract activity than the baseline activity level of 100 from 2001.

Of the four main U.S. regions, the West was the only area to post an increase in pending-home sales from December to January, with 1.5 percent more homes going pending.

But all four regions were down year over year, and the Northeast saw the greatest monthly scaleback in buyers going under contract.

Northeastern states saw a 12 percent monthly decline in pending-home sales in January. NAR’s pending sales index fell by approximately 6 percent in both the Midwest and the South.