Pending home sales fell in December, taking a step back after increasing slightly in November, according to the National Association of Realtors®. Each of the four major regions reported a drop in month-over-month contract activity, with the South experiencing the steepest fall. However, year-over-year pending home sales activity was up nationally compared to one year ago.
The Pending Home Sales Index (PHSI), a forward-looking indicator based on contract signings, fell 4.9% to 103.2 in December. Year-over-year contract signings increased 4.6%. An index of 100 is equal to the level of contract activity in 2001.
“Mortgage rates are expected to hold under 4% for most of 2020, while net job creation will likely exceed two million,” said Lawrence Yun, NAR’s chief economist. While he noted that these factors are promising for the housing market, Yun cautioned that low inventory remains a significant longer-term concern.
“Due to the shortage of affordable homes, home sales growth will only rise by around 3%,” Yun predicted. “Still, national median home price growth is in no danger of falling due to inventory shortages and will rise by 4%. The new home construction market also looks brighter, with housing starts and new home sales set to rise 6% and 10%, respectively.”
Pointing to data from active listings at realtor.com®, Yun says the markets where listing prices are around $250,000 – an affordable price point in most markets nationally – are drawing some of the most significant buyer attention, including Fort Wayne, Ind., Burlington, N.C., Topeka, Kan., Pueblo, Colo., and Columbus, Ohio.
“The state of housing in 2020 will depend on whether home builders bring more affordable homes to the market,” Yun said. “Home prices and even rents are increasing too rapidly, and more inventory would help correct the problem and slow price gains.”
December Pending Home Sales Regional Breakdown
All regional indices were down in December. The Northeast PHSI slipped 4.0% to 92.4 in December, 0.1% lower than a year ago. In the Midwest, the index dropped 3.6% to 98.8 last month, 1.3% higher than in December 2018.
Pending home sales in the South decreased 5.5% to an index of 118.1 in December, a 7.4% increase from December 2018. The index in the West fell 5.4% in December 2019 to 93.1, an increase of 7.0% from a year ago.
The National Association of Realtors® is America’s largest trade association, representing more than 1.4 million members involved in all aspects of the residential and commercial real estate industries.
*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.
The index is based on a large national sample, typically representing about 20% of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.
An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.