Pending Home Sales Lose Strength as Year Ends

by James McClister

January 30, 2015

Pending home sales took a step back in December, but remain well above 2013 levels.

The National Association of Realtors released its newest Pending Home Sales Index today, finding that despite persistently low interest rates, December pending home sales fell from a month prior, both nationally and regionally.

A reflection of contract signings, NAR’s index clearly reflects a slowdown from November to December, falling 3.7 percent to 100.7 from 104.6. However, regardless of the seasonal slump, December pending sales still represent an 11.7 percent year-over-year gain, which is the most significant such gain since June 2013.

Down Across the Board

On a regional level, NAR researchers found that pending sales had similarly slowed.

In the Northeast, sales dropped 7.5 percent to an index rating of 82.1 – the most significant drop of any individual region ¬– but rose 6.3 percent from the same time last year.
In the Midwest, sales dropped 2.8 percent to 97.1, but rose 1.9 percent from the same time last year.
In the South, sales dropped 2.6 percent to 116.6 – the most modest decrease of any individual region – but rose 8.6 percent from the same time last year.
In the West, sales dropped 4.6 percent to 94, but rose 6.3 percent from the same time last year.

Still Set for a Strong 2015

At a cursory glance, with interest rates being as low as there are, it might seem lie increases in pending home sales would be an inevitability, but NAR Chief Economist Lawrence Yun says low inventory leverls coupled with late year price increases may have lead to Decemeber’s decline in contract signings.

“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,” he said.

Yun went on to explain how job market improvements, increasing consumer confidence and the recent enacted new mortgage rules “will likely lead to more demand from first-time buyers.”

In NAR’s report, 2015 projections show December’s slump shouldn’t carry over into the new year, as total existing-home sales are expected to increase 6.6 percent from 2014.