Low Inventory Might Slow the Pace of Home Sales

Pending home sales inched up 0.5 percent during the year according to the Pending Home Sales Index released by the National Association of Realtors (NAR) on Wednesday. The Pending Home Sales Index is a monthly forward looking indicator based on contract signings.

The index moved higher by 0.5 percent to 110.1 in December from an upwardly revised 109.6 in November and also reached the highest level since March 2017, where the index had touched 111.3 points.

These modest increases point towards rise in contract activity as well as interest of aspiring buyers who are being encouraged to look for new homes at the prospect of rising mortgage rates.

“Sadly, these positive indicators may not lead to a stronger sales pace. Buyers throughout the country continue to be hamstrung by record low supply levels that are pushing up prices especially at the lower end of the market,” said Lawrence Yun, Chief Economist at NAR.

According to NAR, the uninterrupted supply and demand imbalances across the U.S. fueled price appreciation that rose to 5.8 percent in 2017. This price appreciation reflected a sixth straight year of gains at or above the 5 percent appreciation level.

“While tight inventories are still expected to put upward pressure on prices in most areas this year, we expect overall price growth to shrink, with some states experiencing decline because of the negative effects of the changes to the mortgage interest rate deduction and state and local deductions under the new tax law,” Yun said.

In terms of regions, the southern region showed maximum growth with the index reflecting a year over year growth of 4 percent. The region registered a growth of 2.6 percent to 126.9 points in December 2017. At the other end of the spectrum, the growth in the West was 3.1 percent down compared to a year ago, even though the index rose 1.5 percent on a month over month basis to 101.7 points.

The Pending Home Sales Index for the Northeast region declined 5.1 percent to 93.9 points in December and was 2.7 percent below its year ago growth. The Midwest index decreased 0.3 percent to 105 points but was still higher by 0.3 percent compared with the year ago period.