Tight inventories are again being blamed for a downturn in home sales, this
time January's ones. The National
Association of Realtor's® (NAR's) Pending Home Sale Index (PHSI) declined by
2.8 percent from December, reaching the lowest level in a year. The PHSI is a forward-looking indicator based
on signed contracts for home purchases.
Those contracts are generally expected to turn into completed sales in
about 60 days.
The January PHSI dipped to 106.4 from an upwardly revised 109.5 in
December. The December index had
originally been reported at 109.0. The
index remains 0.4 percent higher than it was in January 2016, but is at the
lowest level since then.
This index is beginning to exhibit the same kind of volatility that has
marked new home sales in recent months. The index gained 1.6 percent in
December, only partially recovering from a 2.5 percent downturn in November.
The January downturn was unexpected.
Analysts surveyed by Econoday were looking for a strong kick-off for the
new year, with predictions ranging from 0.3 to 1.2 percent gains. The consensus was on the high end of those
estimates at 1.1 percent.
NAR chief economist, says home shoppers in January faced numerous obstacles in
their quest to buy a home. "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," he said. "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." NAR's report on existing home sales released
last week reported a typical marketing period of 50 days in January compared to
64 days in January 2016.
Yun, interest in buying a home is the highest it has been since the Great Recession.
Households are feeling more confident about their financial situation; job
growth is strong in most of the country and the stock market has seen record
gains in recent months. While these factors bode favorably for increased sales
in coming months, buyers are dealing with challenging supply shortages that
continue to run up prices in many areas.
accelerated price appreciation (NAR put the increase at 7.1 percent
year-over-year) is concerning because it's over double the pace of income
growth and mortgage rates are up considerably from six months ago," said Yun.
"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."
projecting sales of existing homes to total about 5.57 million units this year,
up 2.2 percent from the estimate of 5.45 million sales in 2016. The national median existing-home price is
expected to increase around 4 percent in 2017. Last year existing sales
increased 3.8 percent and prices rose 5.1 percent.
"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," added
On a regional
basis, the PHSI rose 2.3 percent in the Northeast to 98.7, 3.6 percent above January
2016. The index fell 5.0 percent in the
Midwest to 99.5 percent, a 3.8 percent loss compared to a year earlier
The South saw
a slight gain for the month, inching up 0.4 percent to 122.5, a gain of 2.0
percent on an annual basis. The worst performance was in the West where pending
sales dropped 9.8 percent in January to 94.6, and are now 0.4 percent lower
than a year ago.
Homes Sales Index is based on a large national sample, typically representing
about 20 percent of transactions for existing-home sales. In developing the
model for the index, it was demonstrated that the level of monthly
sales-contract activity parallels the level of closed existing-home sales in
the following two months. The Index was
set to 100 in 2001.