Pending home sales show biggest gain since 2020
NAR's monthly report found that as mortgage rates declined in January, pending home sales moved upward.
Key points:
- An 8.1% increase in pending home sales in January was the biggest monthly gain since June 2020.
- Year over year, pending home sales were off by more than 24%.
- NAR Chief Economist Lawrence Yun said he expects home sales to be down by more than 11% in 2023.
Pending home sales climbed by more than 8% in January, the biggest monthly gain since June 2020. Monthly pending home sales were up in all four U.S. regions, the National Association of Realtors reported.
January's rise marked the second straight month of gains in pending home sales after a half-year of consecutive declines. Pending homes sales rose by a modest 2.5% increase in December.
Year over year, pending home sales were off by more than 24%.
"Buyers responded to better affordability from falling mortgage rates in December and January," said NAR chief economist Lawrence Yun, predicting that 30-year fixed mortgages will drop to an average of 6.1% in 2023 and 5.4% in 2024.
"Home sales activity looks to be bottoming out in the first quarter of this year, before incremental improvements will occur," Yun said, adding that he does not expect an annual gain in home sales in 2023.
Yun is forecasting that housing sales will drop by 11% for the year to a total of 4.47 million units. He predicts that the median home price will decrease by 1.6% to $380,100 for the year.
Taylor Marr, Redfin's chief economist, noted that in January there were fewer new listings on the market "than at any point on record, with the exception of the pandemic."
The lack of supply has impacted demand, because would-be buyers are having a harder time finding a home that matches their needs and budget, he said, adding that the low inventory also is keeping home prices high.
Hannah Jones, economic data analyst with Realtor.com, noted there is typically higher buyer demand in the spring. But she predicts "this spring is expected to be less active than the last couple of years as affordability challenges persist."
Rising interest rates are also hampering affordability, said Bright MLS Chief Economist Lisa Sturtevant, who noted that mortgage applications have been off in February as mortgage rates trend back up to "their highest levels since late November," with weekly data showing "a pullback in activity."
"In the current housing market, it is a battle between the rational, financial calculus of homebuying and the instinctive, psychological side," Sturtevant said. "The head versus the heart. For some buyers, higher mortgage rates simply means buying a home is out of the question unless home prices fall."
Home sales by region
The West posted the strongest monthly growth in pending home sales at 10.1%, which was still off 29% from a year ago.
Pending home sales in the South increased by 8.3% but were down more than 24% from January 2022.
Pending home sales in the Midwest grew by 7.9% but were off more than 21% from a year ago.
In the Northeast, monthly pending home sales rose 6%, which is a decline of 19.8% from January a year ago.
Yun said the West experienced "an extra bump" in pending home sales as rising home prices eased, while the South experienced stronger demand for homes due to job growth.