Economists say the housing market is hanging onto vigorous gains made steadily throughout 2020 despite four months of slight declines in pending home sales, including a .03% dip in December. Last year still hit the recorded high for December pending home sales.
In fact, compared to a year ago, all four regions of the U.S. experienced double-digit gains in pending home sales transactions, according to the Pending Home Sales Index (PHSI) from National Association of Realtors (NAR).
"Despite some weakness in pending sales in recent months, existing home sales continue to happen at breakneck pace," said Realtor.com Chief Economist Danielle Hale. "This momentum, fueled by strong interest from buyers who may have been able to increase savings during the pandemic, will be a key driver of the home sales growth we expect in 2021."
Hale added that "greater participation of sellers and builders in the months ahead will make home sales possible while easing some of the pressure on price growth, which is currently rising at a double-digit percent rate and has been for almost six months."
Highlights from the report included:
- Pending home sales slipped 0.3% in December from the prior month, the fourth consecutive month of decline after an unseasonal surge in August. Total pending sales decreased due primarily to fewer contract signings in the Midwest region.
- Nationally, contract signings rose 21.4% from December 2019, with all regions reaching double-digit year-over-year increases.
- The Pending Home Sales Index hit 125.5, an all-time high for December.
Lawrence Yun, NAR’s Chief Economist said he attributes the decline in pending home sales to a lack of inventory.
"There is a high demand for housing and a great number of would-be buyers, and therefore sales should rise with more new listings."
This elevated demand without a significant boost in supply has caused home prices to increase "and we can expect further upward pressure on prices for the foreseeable future," Yun said.
Yun predicts 2021 will bring about strong economic growth, supported by low mortgage rates and fiscal stimulus, which in turn will bolster existing-home sales.
"I expect the 30-year fixed mortgage rate to average 3%, with the Federal Reserve refraining from any rate increases this year,” he said.
He added that, with rates to remain low, existing-homes sales are likely to reach 6.49 million, which would be a 15% increase from 5.64 million in 2020.
“There will also be slower home price appreciation, likely 6.6%, as increased confidence from homebuilders will ultimately lead to an increase in housing starts.”
For a regional breakdown, see the entire report at NAR.realtor.