Pending home sales bounced back in December, despite ongoing inventory challenges and mortgage rate increases. Solid gains in contract signings in the South and West last month offset weakening activity in the Northeast and Midwest, the National Association of REALTORS® reported Tuesday.
NAR’s Pending Home Sales Index – a forward-looking indicator based on contract signings – rose 1.6 percent to 109 in December over November’s reading. The index is just 0.3 percent higher than last December.
“Pending sales rebounded last month as enough buyers fended off rising mortgage rates and alarmingly low inventory levels to sign a contract,” says Lawrence Yun, NAR’s chief economist. “The main storyline in the early months of 2017 will be if supply can meaningfully increase to keep price growth at a moderate enough level for households to absorb higher borrowing costs. Sales will struggle to build on last year’s strong pace if inventory conditions don’t improve.”
Most of the supply in housing currently rests in the upper tier of the market, Yun says. Sales were up around 10 percent in December 2016 compared to a year ago for homes that sold at or above $250,000. Homes that sold between $100,000 and $250,000, on the other hand, increased only 2.3 percent.
Inventories of homes for sale under $100,000 remain constrained. Inventories below $100,000 were down 11.6 percent compared to a year ago.
“The dismal number of listings in the affordable price range is squeezing prospective first-time buyers the most,” Yun says. “As a result, young households are missing out on the wealth gains most homeowners have accrued from the 41 percent cumulative rise in existing home prices since 2011.”
Nevertheless, NAR predicts a solid year for home sales this year. Existing-home sales are forecast to increase 1.7 percent from 2016 to settle in around 5.54 million for 2017, NAR predicts. The median existing-home price is expected to rise about 4 percent.
Yun predicts housing starts to surge to about 1.26 million units this year, a nearly 8 percent gain over 2016. That would be welcome news to markets facing severe housing shortages.
“Especially if construction-related regulations are relaxed, all eyes will be on the homebuilding industry this year to see if they can finally start making up lost ground on the severe housing shortages impacting much of the country,” Yun says.
Source: National Association of REALTORS®