A lack of properties on the market and deteriorating affordability led to pending home sales in the United States falling in January by 2.8% to their lowest level in a year.
Interest in buying a home has increased to its highest point since the global economic downturn but the buying market is currently challenging, according to the index report from the National Association of Realtors.
The data shows considerable regional variation. The pending home sales index in the Northeast rose 2.3% January and is now 3.6% above a year ago while in the Midwest the index fell 5% and is now 3.8% lower than January 2016.
Pending home sales in the South inched higher by just 0.4% and are now 2% above last January. The index in the West dropped 9.8% and is now 0.4% lower than a year ago.
‘A significant shortage of listings last month along with deteriorating affordability as the result of higher home prices and mortgage rates kept many would be buyers at bay,’ said Lawrence Yun, NAR chief economist.
‘Buyer traffic is easily outpacing seller traffic in several metro areas and is why homes are selling at a much faster rate than a year ago. Most notably in the West, it’s not uncommon to see a home come off the market within a month,’ he pointed out.
According to Yun, interest in buying a home is the highest it has been since the downturn as households are feeling more confident about their financial situation, job growth is strong in most of the country and the stock market has seen record gains in recent months. While these factors bode favourably for increased sales in coming months, buyers are dealing with challenging supply shortages that continue to run up prices in many areas.
He also explained that January’s accelerated price growth is a concern because it’s over double the pace of income growth and mortgage rates are up considerably from six months ago.
‘Especially in the most expensive markets, prospective buyers will feel this squeeze to their budget and will likely have to come up with additional savings or compromise on home size or location,’ Yun added.
Existing home sales are forecast to be around 5.57 million this year, an increase of 2.2% from 2016 and the national median existing home price this year is expected to increase around 4%. In 2016 existing sales increased 3.8% and prices rose 5.1%.
‘Sales got off to a fantastic start in January, but last month’s retreat in contract signings indicates that activity will likely be choppy in coming months as buyers compete for the meagre number of listings in their price range,’ Yun concluded.
