Pending home sales slipped in December

Pending home sales fell slightly in December but still recorded their highest level for the month, according to the National Association of Realtors (NAR).

The Pending Home Sales Index (PHSI) dipped 0.3% to 125.5 in December. Year-over-year contract signings leaped 21.4%, however. An index of 100 is equal to the level of contract activity in 2001.

December’s decrease is the fourth consecutive month of month-over-month declines. While contract transactions fell in one of the four major U.S. regions, activity climbed or remained flat in the three other areas. Compared to a year ago, all four regions witnessed double-digit gains in pending home sales transactions, the NAR said.

“Pending home sales contracts have dipped during recent months, but I would attribute that to having too few homes for sale,” said Lawrence Yun, NAR’s chief economist. “There is a high demand for housing and a great number of would-be buyers, and therefore sales should rise with more new listings.”

Elevated demand without a significant hike in supply is causing home prices to increase while putting pressure on prices in the near future, according to Yun.

But there was recent good news in regard to housing production.

Privately-owned housing starts increased 5.8% to 1.669 million in December 2020 above the revised November estimate of 1.578 million, according to the latest Monthly Residential Construction report released this morning by the Census Bureau and Department of Housing and Urban Development.

Single-family housing starts in December were at a rate of 1.338 million, which is 12% above the November revised rate of 1.195 million. 

Additionally, single-family permits authorized in December were at 1.226 million, rising 7.8% above the revised November figure of 1.137 million.

Yun said that he continues to project 2021 will bring about strong economic growth, supported by low mortgage rates and fiscal stimulus, which in turn will bolster existing-home sales. The economist also expects the 30-year fixed mortgage rate to average at about 3% with the Federal Reserve refraining from any rate increases in 2021.

With rates remaining low, Yun said that 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,” he said.

Here’s how pending home sales break down by region:

• The Northeast PHSI rose 3.1% to 112 in December, a 22.1% increase from a year ago. 
• In the Midwest, the index fell 3.6% to 111.7 last month, up 13.9% from December 2019.
• Pending home sales in the South increased 0.1% to an index of 150.6 in December, up 26.6% from December 2019. 
• The index in the West was unchanged in December, remaining at 111.3, which is up 18.9% from a year ago.