The National Association of Realtors said the Pending Home Sales Index (PHSI) fell in January to its lowest level in over 3 years, as supply shortages leave buyers with few options. The PHSI fell 4.7% to 104.6 from a downwardly revised 109.8 in December 2017.
The index is now 3.8% below a year ago and at its lowest level since October 2014 (104.1).
“The economy is in great shape, most local job markets are very strong and incomes are slowly rising, but there’s little doubt last month’s retreat in contract signings occurred because of woefully low supply levels and the sudden increase in mortgage rates,” NAR chief economist Lawrence Yun said. “The lower end of the market continues to feel the brunt of these supply and affordability impediments.”
The number of available listings at the end of January was at an all-time low for the month and a startling 9.5% below a year ago.
“With the cost of buying a home getting more expensive and not enough inventory, some prospective buyers are either waiting until listings increase come spring or now having to delay their search entirely to save up for a larger down payment,” Mr. Yun added. “Even though contract signings were down, Realtors indicated that buyer traffic in most areas was up January compared to a year ago.”
The PHSI in the Northeast fell 9.0% to 87.0 in January and is now 12.1% below a year ago.
“The exception was likely in the Northeast, where the frigid cold snap the first two weeks of the month may have contributed some to the region’s large decline,” Mr. Yun said.
In the Midwest the index fell 6.6% to 98.2 in January and is now 4.1% lower than January 2017. Pending home sales in the South fell 3.9% to 121.9 and are now 1.1% lower than last January. The index in the West ticked down 1.2% to 97.9 and is 2.5% below a year ago.
“As new multi-family supply catches up with demand and slows rents, some large investors may begin putting their holdings of affordable single-family homes up for sale, which would be great news, particularly for first-time buyers,” Mr. Yun said. “Furthermore, sellers last year typically stayed in their home for 10 years before selling (an all-time high)2; although higher mortgage rates will likely discourage some homeowners from wanting a new home with a higher rate, there are possibly many pent-up sellers who may look to finally trade-up or move down this year.”
In 2018, existing-home sales are forecast to be around 5.50 million – roughly unchanged from 2017 (5.51 million). The national median existing-home price this year is forecast to gain by 2.7%. In 2017, existing sales increased 1.1% and prices rose 5.8%.