Pending home sales in January dropped 4.9%, according to a report issued Feb. 29 by the National Association of REALTORS® (NAR). The Northeast and West posted monthly gains in transactions while the Midwest and South recorded losses. All four U.S. regions registered year-over-year decreases.
The Pending Home Sales Index (PHSI)—a forward-looking indicator of home sales based on contract signings—decreased to 74.3 in January. Year over year, pending transactions were down 8.8%. An index of 100 is equal to the level of contract activity in 2001.
The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing. The index is based on a sample that covers about 40% of multiple listing service data each month.
“The job market is solid, and the country’s total wealth reached a record high due to stock market and home price gains,” said NAR Chief Economist Lawrence Yun. “This combination of economic conditions is favorable for home buying. However, consumers are showing extra sensitivity to changes in mortgage rates in the current cycle, and that’s impacting home sales.”
Regional breakdown
The Northeast PHSI increased 0.8% from last month to 63.6, a decline of 5.5% from January 2023. The Midwest index decreased 7.6% to 73.7 in January, down 11.6% from one year ago.
The South PHSI declined 7.3% to 88.5 in January, falling 9.0% from the prior year. The West index rose 0.5% in January to 61.1, down 7.0% from January 2023.
“Southern states and those in the Rocky Mountain time zone experienced faster job growth compared to the rest of the country,” added Yun. “As a result, long-term housing demand is increasing more significantly in these regions. However, the timing and number of purchases will largely depend on the prevailing mortgage rates and inventory availability.”
Key takeaways:
- Pending home sales decreased 4.9% in January.
- Month over month, contract signings rose in the Northeast and West but fell in the Midwest and South.
- Compared to one year ago, pending home sales declined in all U.S. regions.
