Pending home sales increased 0.5% in December compared with November to reach a score 110.1 on the National Association of Realtors’ (NAR) Pending Home Sales Index.
It was the third consecutive month that pending home sales increased.
Year over year, pending home sales were up 0.5% compared with December 2016.
Regionally, contract signings increased 2.6% in the South and 1.5% in the West.
However, they dipped 5.1% in the Northeast and 0.3% in the Midwest.
“Another month of modest increases in contract activity is evidence that the housing market has a small trace of momentum at the start of 2018,” says Lawrence Yun, chief economist for NAR, in a release. “Jobs are plentiful, wages are finally climbing and the prospect of higher mortgage rates are perhaps encouraging more aspiring buyers to begin their search now.
“Sadly, these positive indicators may not lead to a stronger sales pace,” Yun adds. “Buyers throughout the country continue to be hamstrung by record low supply levels that are pushing up prices – especially at the lower end of the market.”
Because the lack of supply is expected to continue into 2018, NAR is forecasting that home prices will increase 5.8%.
That would make it the sixth straight year of home price gains at or above 5%.
Yun, however, says the new tax code will likely hold down home price appreciation in 2018, with some states even experiencing a decline, because of the negative effect the changes to the mortgage interest deduction and state and local deductions.
“In the short term, the larger paychecks most households will see from the tax cuts may give prospective buyers the ability to save for a larger down payment this year, and the healthy labor economy and job market will continue to boost demand,” he says. “However, there’s no doubt the nation’s most expensive markets with high property taxes are going to be adversely impacted by the tax law.
“Just how severe is still uncertain,” he adds. “But with homeownership now less incentivized in the tax code, sellers in the upper end of the market may have to adjust their price expectations if they want to trade down or move to less expensive areas. This could in turn lead to both a decrease in sales and home values.”
NAR is forecasting that existing home sales will increase 0.5% to reach 5.54 million in 2018.
Existing home sales reached 5.51 million in 2017, an increase of 1.1% compared with 2016.