Pending home sales rise slightly to close out 2017
The level of pending sales in the United States edged up slightly in December, according to the National Association of Realtors. The organization said it is predicting a slight increase in sales in 2018, but also expects home prices to moderate as a result of the newly passed tax reform legislation.
The Pending Home Sales Index for the month stood at 110.1, up 0.5 percent from November's upwardly revised figure of 109.6. The index was also up 0.5 percent from December 2016.
The National Association of Realtors uses the Pending Home Sales Index as a forward-looking indicator of existing home sales. The figure tracks sales where a contract has been signed but the sale has not yet been closed, an action which usually takes place within the next two months. An index of 100 is equal to sales activity in 2001, which had an existing home sales range of 5 million to 5.5 million; this is considered normal for the current U.S. population.
December was the third consecutive month where pending sales were up. Lawrence Yun, chief economist of the National Association of Realtors, said the index was at its highest point since the figure of 111.3 in March.
"Another month of modest increases in contract activity is evidence that the housing market has a small trace of momentum at the start of 2018," said Yun. "Jobs are plentiful, wages are finally climbing, and the prospect of higher mortgage rates are perhaps encouraging more aspiring buyers to begin their search now."
However, Yun said the positive indicators may not lead to a strong increase in sales. He has frequently pointed to the shrinking number of available homes for sale as a factor in pushing up home prices and increasing competition for available properties, which can make it harder for buyers to find a home within their price range.
Existing home sales were up 1.1 percent in 2017 to 5.51 million transactions, while median home prices grew by 5.8 percent. This marked the sixth consecutive year where year-over-year home price increases exceeded 5 percent.
The National Association of Realtors forecasts that single-family housing starts will grow 13.3 percent to 961,000. The organization expects that this will increase new home sales up to 701,000, a 15.3 percent increase.
Yun said he believes existing home sales will grow 0.5 percent to 5.54 million in 2018, and expects that tight inventory conditions will continue to put upward pressure on home prices. However, he also believes the growth of home values will shrink this year as a result of the recently passed tax bill, with some areas even seeing a decrease in home prices.
"In the short term, the larger paychecks most households will see from the tax cuts may give prospective buyers the ability to save for a larger down payment this year, and the healthy labor economy and job market will continue to boost demand. However, there's no doubt the nation's most expensive markets with high property taxes are going to be adversely impacted by the tax law. Just how severe is still uncertain, but with homeownership now less incentivized in the tax code, sellers in the upper end of the market may have to adjust their price expectations if they want to trade down or move to less expensive areas. This could in turn lead to both a decrease in sales and home values."
The Pending Home Sales Index in the Northeast region—which the National Association of Realtors defines as the New England states, New Jersey, New York, and Pennsylvania—fell to 93.9 in December. This was down 5.1 percent from November and 2.7 percent from December 2016.
The index in the West, which includes 13 states, rose 1.5 percent to 101.7. This figure still marked a year-over-year decline of 3.1 percent.
In the Southern region, which extends from Maryland to Texas, the Pending Home Sales Index stood at 126.9 – up 2.6 percent from the previous month and 4 percent from the previous year. The Midwest region, ranging from Ohio to North Dakota, had an index of 105. This was down 0.3 percent from November, but up 0.3 percent from December 2016.
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