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Accelerating Prices, Low Inventory Drive Pending Home Sales Down

applicationWhile winter months typically provide an expected seasonal cooling of the housing market, there are two other pressing factors in the equation that are keep buyers out of the market.

Pending home sales began 2016 on a low note, falling to their lowest level in a year after hitting its highest average year in nearly a decade.

The National Association of Realtors (NAR) reported that its Pending Home Sales Index decreased 2.5 percent to 106.0 in January 2016, down from an upwardly revised 108.7 in December 2015.

However, despite the bleak start to 2016, the index us still up 1.4 percent above January 2015's index of 104.5. The NAR said although the index has increased year-over-year for 17 consecutive months, last month’s annual gain was the second smallest compared to September 2014 at 1.2 percent, during the timeframe.

Lawrence Yun, NAR Chief Economist noted that several factors played into the decline in contract signings across the country.

Pending Home Sales January 2016

Source: NAHB

“While January’s blizzard possibly caused some of the pullback in the Northeast, the recent acceleration in home prices and minimal inventory throughout the country appears to be the primary obstacle holding back would-be buyers,” Yun stated. “Additionally, some buyers could be waiting for a hike in listings come springtime.

Realtor.com Chief Economist Jonathan Smoke added, "January is typically the second slowest month of sales, and the decline in the stock market likely also caused buyers who were dependent on stock portfolios to postpone buying decisions."

Rising home values will hopefully encourage more homeowners to sell, but Yun believes "supply and affordability conditions won’t meaningfully improve until home builders start ramping up production–especially of homes at lower price points."

Yun added, “First-time buyers in high demand areas continue to encounter instances where their offer is trumped by cash buyers and investors. Without a much-needed boost in new and existing-homes for sale in their price range, their path to homeownership will remain an uphill climb.”

The PHSI in the Northeast declined 3.2 percent to 94.5 in January, but is still 10.9 percent above a year ago. In the Midwest the index fell 4.9 percent to 101.1 in January, but is still 1.4 percent above January 2015.

Pending home sales in the South inched up 0.3 percent to an index of 121.1 in January but remain 1.3 percent lower than last January. The index in the West decreased 4.5 percent in January to 96.5, but is still 0.4 percent above a year ago.

The National Association of Realtors, “The Voice for Real Estate,” is America’s largest trade association, representing 1.1 million members involved in all aspects of the residential and commercial real estate industries.

Stephen Melman, J.D., National Association Home Builders Director of Economic Services said, "Existing sales increased 11.0 percent in 2015, and improving economic conditions and rising employment suggest a continuing recovery in existing sales. However, both housing starts and new home sales stumbled in January. Also, the long-term weakness among first-time buyers will continue to dampen all sales in 2016."

"Looking ahead, we expect to see an increase in new contracts in February as web activity and stated buyer intentions combine with better weather for most of the country to enable an early start to the spring buying season," Smoke explained. "The existing home market should see marginal growth in 2016, but tight supply will continue to be the biggest inhibitor of sales."

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