Pending home sales slumped in January, continuing what is now a three-month drop in transactions, the National Association of Realtors reported. Of the four major U.S. regions, only the West registered an increase in month-over-month contract activity. All four regions posted a decline in year-over-year activity.
The Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contract signings, fell 5.7% to 109.5 in January. Year-over-year, transactions decreased 9.5%. An index of 100 is equal to the level of contract activity in 2001.
“With inventory at an all-time low, buyers are still having a difficult time finding a home,” said Lawrence Yun, NAR's chief economist.
Alongside persistent supply constraints, Yun said house hunters are contending with a number of additional market issues, including escalating home prices and rising interest rates. Rates jumped by nearly a percentage point in January from December, further adding to monthly mortgage costs.
“Given the situation in the market – mortgages, home costs and inventory – it would not be surprising to see a retreat in housing demand,” Yun said.
NAR expects economic conditions to be volatile in the coming months. The impending conclusion of the Federal Reserve's asset purchase program in March paves the way for higher interest rates. Russia's aggression in Ukraine is also likely to affect global oil supply, imposing further burdens on inflation and bringing about more aggressive rate hikes.
“There's also the possibility that investors may flee toward safer U.S. Treasury bonds, which may result in temporary short-term relief to interest rates,” Yun added.
Realtor.com's Hottest Housing Markets data in January showed that of the largest 40 metros, the most improved markets over the past year were Orlando-Kissimmee-Sanford, Florida; Tampa-St. Petersburg, Florida; Jacksonville, Florida; Nashville-Davidson-Murfreesboro-Franklin, Tennessee; and Las Vegas-Henderson-Paradise, Nevada.
January Pending Home Sales Regional Breakdown
Month-over-month, the Northeast PHSI dropped 12.1% to 84.3 in January, a 16.7% decrease from a year ago. In the Midwest, the index fell 5.9% to 104.4 last month, down 5.9% from January 2021.
Pending home sales transactions in the South slipped 6.3% to an index of 134.6 in January, down 8.7% from January 2021. The index in the West increased 1.5% in January to 95.2, down 9.7% from a year prior.
The National Association of Realtors® is America's largest trade association, representing more than 1.5 million members involved in all aspects of the residential and commercial real estate industries.