Driven by lower mortgage rates and a slight increase in inventory, pending home sales surged 8.3% in December compared with November and were up 1.3% compared with December 2022, according to the National Association of Realtors.
Regionally, and month-over-month, the Midwest, South and West posted monthly gains in transactions while the Northeast recorded a loss.
The Midwest, South and West also registered year-over-year increases while the Northeast had a decline in transactions compared to last year.
“The housing market is off to a good start this year, as consumers benefit from falling mortgage rates and stable home prices,” says Lawrence Yun, chief economist for NAR, in a statement. “Job additions and income growth will further help with housing affordability, but increased supply will be essential to satisfying all potential demand.”
Currently NAR is forecasting that existing-home sales will increase 13% in 2024 compared with 2023.
“Home sales are projected to rise significantly in each of the next two years as the market steadily returns to normal sales activity,” Yun says.
NAR predicts the Federal Reserve will cut interest rates four times. The 30-year fixed mortgage rate will bounce along the 6% to 7% range for most of the year.
NAR forecasts that due to sizable growth in apartment construction over the past three years, rent growth will calm, which will help bring consumer price inflation to less than 3% in 2024.
“The housing market is showing signs of recovery, a trend that is likely to persist if mortgage rates remain on their downward trajectory,” says Odeta Kushi, deputy chief economist for First American, in a separate statement. “Pending home sales in December increased 8.3 percent compared with the previous month, far surpassing the projected consensus of a more modest 2 percent increase. This was the largest month-over-month jump in pending home sales since 2020. Pending sales are a forward-looking indicator of home sales based on contract signings, so the December increase signals positive developments in the housing market.”
“Consensus projections always seemed on the low side given what we’ve seen with mortgage applications, another leading indicator of sales activity,” Kushi adds. “Average mortgage applications in December increased nearly 8 percent compared with the previous month, and so far in the month of January have increased approximately 10 percent compared with December. A simple analysis based on the historical relationship between mortgage applications and existing-home sales indicates that existing-home sales should accelerate. While the level of sales activity remains low, the positive growth is a welcome and promising sign for the housing market.”
Photo: Gabrielle Henderson