Signed contracts to buy existing homes in the US rose in January to the largest monthly increase since June 2020 as the housing market heads into recovery mode.
The National Association of Realtors’ index of pending home sales rose 8.1% to 82.5 in January, higher than Bloomberg economists’ forecast estimate of 1.0%, according to data the group released on Monday. On a yearly basis, however, outstanding transactions fell nearly 24%.
The metric, a leading indicator of the health of the housing market, underscores how much the market has turned around this year on the back of a slowdown in house prices and higher mortgage rates.
“Buyers responded to better affordability by falling mortgage rates in December and January,” NAR chief economist Lawrence Yun said in a statement.
According to NAR, the group expects the economy to remain resilient this year and next, creating more jobs, with the 30-year fixed-rate mortgage interest rate set to decline to an average of 6.1% in 2023 and 5.4% heading towards 2024.
Yun said he expects annual existing home sales to fall 11.1% to total 4.47 million units in 2023, before rising 17.7% to total 5.26 million units in 2024. New home sales from NAR projects are set to decline 3.7% YoY in 2023 before growing 19.4% in 2024.
“In the first quarter of this year, home sales activity seems to have bottomed out before gradual improvements will come,” Yun added. “But until 2024 there will be no annual increase in home sales. Meanwhile, house prices will remain stable in most parts of the country, with a small change in the national median house price.”
Contract signings increased in all regions. Pending sales increased 6.0% in the Northeast, 7.9% in the Midwest, 8.3% in the South and 10.1% in the West. Pending home sales declined year-over-year in all regions.
“The west region saw additional gains due to lower property prices, while gains in the south were driven by stronger job growth in the region,” Yun added.
The story goes on
MIAMI, FLORIDA – FEBRUARY 22: A for sale sign displayed in front of a home on February 22, 2023 in Miami, Florida. US home sales fell for the 12th straight month in January as high mortgage rates combined with high prices discouraged people from looking for homes. It was the weakest home sales activity since 2010. (Photo by Joe Raedle/Getty Images)
These figures came in the month when mortgage rates stabilized, the labor market remained resilient and inflation slowly eased. The interest rate on 30-year fixed-rate mortgages has been on a downward trend, reaching nearly 6% in late January, compared to a peak of 7% in mid-November last year.
“As interest rates oscillated in the fall, many buyers abandoned because they could wake up to a triple-digit increase in their potential monthly payment the day after they found their dream home,” wrote Chen Zhao, head of Redfin Economics Research. in a statement. “Now they have a better sense of how far their budget goes, in which parts of the city and which apartments they can afford.”
Separately, other data shows that new home sales are rising while existing home sales are falling. The reason: more homeowners of old buildings are sitting on cheaper mortgages and are therefore reluctant to lower their selling prices.
Meanwhile, builders pull tools from their toolbox to move inventory. And it seems to be working. For example, homebuilder PulteGroup (PHM) is offering a 30-year fixed rate of just 4.25% this quarter and plans to ramp up the pace on new builds.
“Builders not only use incentives to boost sales, such as They also offer equipment upgrades and other quality features, essentially giving the buyer more home for the same amount of money they originally contracted,” said Odeta Kushi, First American Deputy Chief Economist , to Yahoo Finance in a statement.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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