WASHINGTON – March 28, 2018 – Pending home sales snapped back in much of the country in February, but weakening affordability and a lack of inventory restricted overall activity compared to a year ago, according to the National Association of Realtors® (NAR).
The Pending Home Sales Index, a forward-looking indicator based on contract signings, grew 3.1 percent to 107.5 in February from a downwardly revised 104.3 in January. Even with last month's increase in activity, however, the index is 4.1 percent below a year ago.
Lawrence Yun, NAR chief economist, says the housing market has gotten off to an uneven start so far in 2018.
"Contract signings rebounded in most areas in February, but the gains were not large enough to keep up with last February's level, which was the second highest in over a decade (112.1)," Yun says. "The expanding economy and healthy job market are generating sizeable homebuyer demand, but the miniscule number of listings on the market and its adverse effect on affordability are squeezing buyers and suppressing overall activity."
Yun expects ongoing volatility in the Northeast region at least through March. "Although pending sales there bounced back in February following January's cold weather-related decline, the multiple winter storms over these last few weeks likely put a chill on contract signings once again this month."
With the start of the spring buying season in full swing, Yun believes that one of the top wild cards for the housing market in coming months will be how both buyers and potential sellers adjust to the steady climb in mortgage rates since late last year.
Prospective buyers continue to feel the strain of swift price growth – up 5.9 percent so far in 2018 – and higher borrowing costs will only add to the pressures placed on their budget. And if more homeowners balk at selling their home out of a fear that they'll lose their current low mortgage rate – especially if they refinanced in recent years – the number of for-sale homes could remain sparse for a while.
"Homeowners are already staying in their homes at an all-time high before selling, and any situation where they remain put even longer only exacerbates the nation's inventory crunch," says Yun. "Even if new home construction starts picking up at a faster pace this year, as expected, existing sales will fail to break out if these record low supply levels do not recover enough to meet demand."
Yun now forecasts that existing-home sales will be around 5.51 million this year – flat from 2017. The national median existing-home price is expected to increase around 4.2 percent. In 2017, existing sales increased 1.1 percent and prices rose 5.8 percent.
In the Northeast, the pending sales index surged 10.3 percent to 96.0 in February, but it's still 5.1 percent below a year ago. In the Midwest, the index inched forward 0.7 percent to 98.9 in February but is 9.5 percent lower than February 2017.
In the South, the pending sales index rose 3.0 percent to an index of 125.7 in February, but it's 1.5 percent lower than last February. The index in the West climbed 0.4 percent in February to 96.9 but it's 2.2 percent below a year ago.
© 2018 Florida Realtors®