After rising for three consecutive months, pending home sales in January fell 4.7% compared with December to reach the lowest level in more than three years, according to the National Association of Realtors (NAR).
Contract signings fell in all four regions. In the Northeast they dropped 9.0%, in the Midwest they fell 6.6%, in the South they declined 3.9% and in the West they decreased 1.2%, according to NAR’s Pending Home Sales Index.
As of the end of January the index stood at 104.6, down from a downwardly revised score of 109.8 in December.
After last month’s retreat, the index is now 3.8% below a year ago and at its lowest level since October 2014.
Once again, lack of supply was the main culprit.
“The economy is in great shape, most local job markets are very strong and incomes are slowly rising, but there’s little doubt last month’s retreat in contract signings occurred because of woefully low supply levels and the sudden increase in mortgage rates,” says Lawrence Yun, chief economist for NAR, in a statement. “The lower end of the market continues to feel the brunt of these supply and affordability impediments. With the cost of buying a home getting more expensive and not enough inventory, some prospective buyers are either waiting until listings increase come spring or now having to delay their search entirely to save up for a larger down payment.”
Yun adds that even though contract signings were down, “Realtors indicated that buyer traffic in most areas was up January compared to a year ago.”
“The exception was likely in the Northeast, where the frigid cold snap the first two weeks of the month may have contributed some to the region’s large decline,” he says.
The number of available listings at the end of January was at an all-time low for the month and a startling 9.5 percent below a year ago.
However, Yun says he sees some relief for the inventory problem on the way. Not only are homebuilders ramping up their production, institutional investors are beginning to unload their portfolios of single-family properties back onto the market. In addition, certain homeowners who were previously hesitant to sell might now decide to do so.
“As new multi-family supply catches up with demand and slows rents, some large investors may begin putting their holdings of affordable single-family homes up for sale, which would be great news, particularly for first-time buyers,” Yun says. “Furthermore, sellers last year typically stayed in their home for 10 years before selling – an all-time high – although higher mortgage rates will likely discourage some homeowners from wanting a new home with a higher rate, there are possibly many pent-up sellers who may look to finally trade-up or move down this year.”
Currently Yun forecasts that existing-home sales will reach 5.50 million in 2018 – down slightly from 5.51 million in 2017.
The national median existing-home price this year is expected to increase around 2.7%. In 2017, existing-home sales increased 1.1% and prices rose 5.8%.