WASHINGTON (January 29, 2015) – Despite interest rates being at their lowest level of 2014, pending home sales cooled in December but remained above year-over-year levels for the fourth consecutive month, according to the National Association of Realtors®. All major regions experienced declines in December.
The Pending Home Sales Index,* a forward-looking indicator based on contract signings, decreased 3.7 percent to 100.7 in December from a slightly downwardly revised 104.6 in November but is 6.1 percent above December 2013 (94.9). Despite last month’s decline (the largest since December 2013 at 5.8 percent), the index experienced its highest year-over-year gain since June 2013 (11.7 percent).
Lawrence Yun, NAR chief economist, says fewer homes available for sale and a slight acceleration in prices likely led to December’s decline in contract signings. “Total inventory fell in December for the first time in 16 months, resulting in fewer choices for buyers and a modest uptick in price growth in markets throughout the country,” he said. “With interest rates at lows not seen since early 2013, the strength in existing-sales in upcoming months will largely depend on the willingness of current homeowners to realize their equity gains from the past couple years and trade up.”
Adds Yun, “More jobs, increasing consumer confidence, less expensive mortgage insurance and new low down payment programs coming into the marketplace will likely lead to more demand from first-time buyers.”
The PHSI in the Northeast experienced the largest decline, dropping 7.5 percent to 82.1 in December, but is still 6.3 percent above a year ago. In the Midwest the index decreased 2.8 percent to 97.1in December, but is 1.9 percent above December 2013.
Pending home sales in the South declined 2.6 percent to an index of 116.6 in December, but are 8.6 percent above last December. The index in the West fell 4.6 percent in December to 94.0, but is 6.3 percent above a year ago.
Total existing-homes sales in 2015 are forecast to be around 5.26 million, an increase of 6.6 percent from 2014. The national median existing-home price for all of this year is expected to increase between 4 and 5 percent. In 2014, existing-home sales declined 3.1 percent and prices rose 5.8 percent.
The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing 1 million members involved in all aspects of the residential and commercial real estate industries.
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*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 percent 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.
NOTE: Fourth quarter metropolitan area home prices will be published February 11, the first quarter Commercial Real Estate Report/Forecast will be released February 19, Existing-home Sales for January will be reported February 23, and the next Pending Home Sales Index will be February 27; release times are 10:00 a.m. EST.