Pending home sales fell 2.8% in January to a score of 106.4 in the National Association of Realtors (NAR) Pending Home Sales Index.
That’s down from an upwardly revised score of 109.5 in December and the lowest since January 2016.
Contract signings increased 2.3% in the Northeast and 0.4% in the South; however, they fell 5.0% in the Midwest and 9.8% in the West.
The culprit, according to Lawrence Yun, chief economist for NAR, is a lack of supply, coupled with a lack of affordability.
“The significant shortage of listings last month, along with deteriorating affordability as the result of higher home prices and mortgage rates, kept many would-be buyers at bay,” Yun says in a statement. “Buyer traffic is easily outpacing seller traffic in several metro areas and is why homes are selling at a much faster rate than a year ago. Most notably in the West, it’s not uncommon to see a home come off the market within a month.”
Despite these headwinds, consumer interest in homeownership is the highest it has been since the Great Recession. Heads of households are feeling more confident about their financial situations – job growth is strong in most of the country, and the stock market has seen record gains in recent months.
“January’s accelerated price appreciation is concerning because it’s over double the pace of income growth, and mortgage rates are up considerably from six months ago,” Yun says. “Especially in the most expensive markets, prospective buyers will feel this squeeze to their budget and will likely have to come up with additional savings or compromise on home size or location.”
NAR is forecasting that existing-home sales will reach 5.57 million this year – an increase of 2.2% compared with 5.45 million in 2016.
The national median existing-home price this year is expected to increase around 4.0. In 2016, existing sales increased 3.8%, and prices rose 5.1%.
“Sales got off to a fantastic start in January, but last month’s retreat in contract signings indicates that activity will likely be choppy in coming months as buyers compete for the meager number of listings in their price range,” Yun adds.
To view NAR’s historical data for pending home sales, click here.