Housing Market Trends: Pending Home Sales on the Rise

CEO Khai Intela
The housing market is abuzz with excitement as pending contracts for home sales continue to surge. With a slight decline in mortgage rates in December and January, the National Association of Realtors (NAR) has reported...

The housing market is abuzz with excitement as pending contracts for home sales continue to surge. With a slight decline in mortgage rates in December and January, the National Association of Realtors (NAR) has reported an 8% improvement in the Pending Home Sales Index for January. This forward-looking indicator of home sales, based on contract signings, marks the second consecutive month of growth. However, year-over-year pending transactions have decreased by 24%.

A "sale pending" sign is posted outside a single-family home in Derry, New Hampshire. Image: A "sale pending" sign is posted outside a single-family home in Derry, New Hampshire.

According to NAR Chief Economist Lawrence Yun, the improved affordability resulting from falling mortgage rates in December and January has motivated buyers to enter the market. As we move forward, NAR predicts that the economy will continue to add jobs, with the 30-year fixed mortgage rate gradually dropping to an average of 6.1% in 2023 and 5.4% in 2024.

What is the Pending Homes Sales Index?

The Pending Home Sales Index is a crucial measure of housing activity. It indicates housing contract activity and is based on signed real estate contracts for existing single-family homes, condos, and co-ops. Since a home typically goes under contract a month or two before the actual sale, the Pending Home Sales Index generally precedes existing-home sales by a month or two.

Implications for Buyers and Sellers

While the recent surge in pending sales indicates a potential turnaround in the housing market, industry experts urge caution. Bright MLS Chief Economist Lisa Sturtevant suggests that the market's recovery may not follow a V-shaped rebound but rather be a bumpy road towards normalization in 2023. Sellers are making price concessions, but higher interest rates pose a challenge for some buyers.

Uncertainty in the Housing Market

The housing market's future remains uncertain due to the upward trend in mortgage rates. The Federal Reserve plans to increase rates at least two, possibly three, times this year, which could further elevate mortgage rates. Consequently, mortgage applications have declined, and housing market activity has seen a decrease in buyer interest over the past few weeks.

Sturtevant notes that the current housing market reflects a battle between the rational, financial calculations of homebuying and the instinctive, psychological side. Whether to buy a home is a challenging decision influenced by both financial considerations and emotional factors.

Projections for Existing Home Sales

Despite improving interest rates and job gains, NAR's Chief Economist Lawrence Yun predicts an 11% decline in annual existing-home sales in 2023, amounting to 4.5 million units. However, he expects a rebound in 2024, with an 18% increase to reach 5.2 million units. NAR also projects a 4% year-over-year decline in new-home sales in 2023, followed by a 19% growth in 2024.

Regional Breakdown of the Housing Market

Analyzing regional data, the Northeast and Midwest regions experienced a 6% and 8% rise in the Pending Home Sales Index, respectively, compared to the previous month. However, both regions saw declines of 20% and 21% compared to January 2022. In the South, the index increased by 8%, but year-over-year, it dropped by 25%. The West exhibited the most significant growth, with a 10% rise, mainly attributed to lower home prices, while year-over-year it dipped by 29%.

The housing market continues to be a subject of discussion among industry experts and potential buyers alike. Despite the uncertainty and fluctuations, market trends indicate a potential rebound in the near future. So whether you're a buyer or a seller, it's crucial to stay informed and keep an eye on the evolving housing market landscape.

Author: Swapna Venugopal Ramaswamy, Housing and Economy Correspondent for USA TODAY.

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