Solid increases in the South and West offset weakening activity in the Northeast and Midwest, as pending home sales increased 1.6% to an index score of 109.0 in December – up from 107.3 in November, according to the National Association of Realtors (NAR).
With last month’s uptick in activity, the index is now 0.3% above December 2015, when it was at 108.7.
Lawrence Yun, chief economist for NAR, says contract activity was mixed throughout the country in December but ultimately ended on a high note to close out 2016.
“Pending sales rebounded last month, as enough buyers fended off rising mortgage rates and alarmingly low inventory levels to sign a contract,” he says in a statement. “The main storyline in the early months of 2017 will be if supply can meaningfully increase to keep price growth at a moderate-enough level for households to absorb higher borrowing costs. Sales will struggle to build on last year’s strong pace if inventory conditions don’t improve.”
According to Yun, a large portion of overall supply right now is at the upper end of the market. This is evident by looking at December data on the year-over-year change in single-family sales by price range. Last month, sales were up around 10% compared with December 2015 for homes sold at or above $250,000, while homes sold between $100,000 and $250,000 only increased 2.3%. Meanwhile, sales of homes under $100,000 were down 11.6% compared with a year ago.
“The dismal number of listings in the affordable price range is squeezing prospective first-time buyers the most,” says Yun. “As a result, young households are missing out on the wealth gains most homeowners have accrued from the 41 percent cumulative rise in existing-home prices since 2011.”
Existing-home sales are forecast to be around 5.54 million this year – an increase of 1.7% from 2016, which was the best year of sales since 2006. The national median existing-home price in 2017 is expected to increase around 4%. In 2016, existing sales increased 3.8%, and prices rose 5.2%.
Yun expects housing starts – which, for another year, undershot overall demand – to jump to around 1.26 million units, which is an increase of 7.9% from 2016 (1.16 million).
“Especially if construction-related regulations are relaxed, all eyes will be on the home building industry this year to see if they can finally start making up lost ground on the severe housing shortages impacting much of the country,” adds Yun.
The Pending Home Sales Index in the Northeast declined 1.6% to 96.4 in December and is now 1.2% below a year ago. In the Midwest, the index decreased 0.8% to 102.7 in December and is now 3.4% lower than December 2015.
Pending home sales in the South rose 2.4% to an index of 121.3 in December and are now 0.5% above last December. The index in the West jumped 5.0% in December to 106.1 and is now 5.0% higher than a year ago.