By Aarthi Swaminathan | Jan 27, 2023
The numbers: U.S. pending home sales rose 2.5% in December, reversing a six-month losing streak, according to the monthly index released Friday by the National Association of Realtors (NAR).
Pending home sales were down for six months in a row as the U.S. Federal Reserve increased interest rates and mortgage rates took off. Pending-home sales beat analyst expectations. Analysts polled by the Wall Street Journal had forecast the pending home sales index to drop by 1%.
Contract signings rose in the South and the West. Pending home sales reflect transactions where the contract has been signed for an existing-home sale, but the sale has not yet closed. Economists view it as an indicator for the direction of existing-home sales in subsequent months. Mortgage application activity hints at the housing market’s further recovery. Mortgage demand rose in the latest week.
Key details: Compared with a year earlier, transactions were down by 33.8%.
On a monthly basis, pending sales rose in the South and the West. Sales dropped in the Northeast and Midwest. Pending home sales fell the most since last December in the West, by 37.5%.
Big picture: A dip in rates has boosted demand for mortgages. Buyers are coming back to the market, and the housing market is slowly recovering. But inventory remains low, as sellers hold out. Many are looking to the spring to see if sellers are motivated to list their homes.
What the realtors said: “This recent low point in home sales activity is likely over,” NAR Chief Economist Lawrence Yun said. “Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market.”
Yun expects mortgage rates to hover between the 5.5% and 6.5% range.
He also expects the South to outperform in terms of sales since the job market is stronger in the region.
What they’re saying: “Home sales have now largely adjusted to the collapse in demand since late 2021. … [but] a sustained recovery likely remains a long way off,” Kieran Clancy, senior U.S. economist at Pantheon Macroeconomics, wrote in a note.
“The downturn in sales is coming to an end, but the decline in home prices is only just getting underway,” he added. He expects home prices to fall 15% over the next year.
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