Pending home sales in the US picked up at the end of 2016, latest index shows

Pending home sales in the United States picked up at the end of 2016 with solid increases in the South and West offset weakening activity in the Northeast and Midwest, the latest index data shows.

The Pending Home Sales Index from the National Association of Realtors, a forward looking indicator based on contract signings, increased 1.6% in December and is now 0.3% above the same month in 2015.

However, activity was mixed throughout the country and according to Lawrence Yun, NAR chief economist, rising mortgage rates and alarmingly low inventory levels have impacted the sales market.

‘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,’ Yun said.

According to Yun, a large portion of overall supply right now is at the upper end of the market. This is evident by looking at December data on the year on year change in single-family sales by price range. Last month, sales were up around 10% compared to December 2015 for homes sold at or above $250,000, while homes sold between $100,000 and $250,000 only increased 2.3%. Meanwhile, sales of homes under $100,000 were down 11.6% compared to a year ago.

‘The dismal number of listings in the affordable price range is squeezing prospective first time buyers the most. As a result, young households are missing out on the wealth gains most homeowners have accrued from the 41% cumulative rise in existing home prices since 2011,’ Yun explained.

Existing home sales are forecast to be around 5.54 million this year, an increase of 1.7% from 2016, which was the best year of sales since 2006. The national median existing home price in 2017 is expected to increase around 4%. In 2016, existing sales increased 3.8% and prices rose 5.2%.

Yun expects housing starts, which for another year undershot overall demand, to jump to around 1.26 million units, an increase of 7.9% from 2016.

‘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,’ added Yun.

A breakdown of the figures show that the index in the Northeast fell by 1.6% in December, and is now 1.2% below a year ago. In the Midwest the index decreased 0.8% and is now 3.4% lower than December 2015.

Pending home sales in the South rose 2.4% in December and are now 0.5% above the previous December and in the West it jumped 5% and is now 5% higher than a year ago.