Pending home sales hit 3-year low

Economic IndicatorsFOXBusiness

Will tax reform lead more people to rent versus buying a home?

Marcus & Millichap CEO Hessam Nadji discusses the impact of the tax reform legislation on real estate.

Pending home sales slid in January to their lowest level in more than three years, extending the slide from December’s downwardly revised data.

Continue Reading Below

The Pending Home Sales Index fell 4.7% to 104.6 in January from the revised 109.8 in December, according to the National Association of Realtors (NAR). Following the retreat last month, the index is now 3.8% lower than a year ago and at its lowest level since October 2014.

“The economy is in great shape, most local job markets are very strong and incomes are slowly rising, but there’s little doubt last month’s retreat in contract signings occurred because of woefully low supply levels and the sudden increase in mortgage rates,” NAR chief economist Lawrence Yun said. “The lower end of the market continues to feel the brunt of these supply and affordability impediments.”

All major regions experienced monthly and annual declines in contract signings last month. Buyer traffic in most areas was higher in January versus last year, according to data from NAR. However, Yun said the exception was likely in the Northeast area due to extreme cold in the first two weeks of the month, which could have been a factor in the region’s major decline.

The number of available listings at the end of January was at an all-time low for the month and 9.5% lower than a year ago. Due to the cost of buying a home increasing and a lack of inventory, some prospective home buyers are waiting until listings increase as spring arrives, or completely delaying their search so they can save for a larger down payment, Yun explained.

In order to ease the low supply levels that are slowing sales, Yun believes there are two factors that need to begin to occur: institutional investors must begin to unload their portfolio of single-family properties back onto the market, and more hesitant homeowners need to decide to sell their properties.

“As new multi-family supply catches up with demand and slows rents, some large investors may begin putting their holdings of affordable single-family homes up for sale, which would be great news, particularly for first-time buyers,” said Yun. “Furthermore, sellers last year typically stayed in their home for 10 years before selling (an all-time high); although higher mortgage rates will likely discourage some homeowners from wanting a new home with a higher rate, there are possibly many pent-up sellers who may look to finally trade-up or move down this year.”

What do you think?

Click the button below to comment on this article.