Pending home sales rose 8.3% in December, the largest jump seen since June 2020’s 14.9% increase, according to the latest data from the National Association of REALTORS® (NAR).
NAR’s Pending Home Sales Index (PHSI) for December registered at 77.3, reflecting a moderate level of activity (an index of 100 is equal to the 5 to 5.5 million level of contract activity in 2001). This is also an improvement from the lack of activity seen in November. Year-over-year, pending transactions were still up slightly by 1.3%.
Regionally, the Northeast PHSI fell 3% to 62.3, down 3.9% YoY. The Midwest grew 5.6% to 80.5, up 4.3% YoY. The South rose 11.9% to 93, up 1.5% YoY. The West jumped 14% to 61, up 1.5% YoY.
NAR also released its Economic Outlook as of January 2024, projecting a 13% increase in existing-home sales in 2024 to 4.62 million, and a 15.8% increase in 2025 to 5.35 million. The annual median home price is expected to rise 1.4% to $395,100 in 2024, and then increase 2.6% to $405,200 in 2025.
Predictions also include that the Federal Reserve will likely cut interest rates four times, and the 30-year fixed mortgage rate will remain shifting in the 6% to 7% range for most of the year.
In addition, NAR forecasted that due to sizable growth in apartment construction over the past three years, rent growth will calm, which will help bring consumer price inflation to less than 3% in 2024.
The takeaways:
“The housing market is off to a good start this year, as consumers benefit from falling mortgage rates and stable home prices,” said NAR Chief Economist Lawrence Yun. “Job additions and income growth will further help with housing affordability, but increased supply will be essential to satisfying all potential demand.
“Home sales are projected to rise significantly in each of the next two years as the market steadily returns to normal sales activity,” he concluded.
“Pending home sales gained ground in December,” said realtor.com® Senior Economic Research Analyst Hannah Jones. “Though for-sale inventory remains scarce, new listing activity picked up 9.1% nationally in December, which pushed overall for-sale inventory 4.9% higher than a year prior. Mortgage rates fell through the end of 2023, lifting expectations for the 2024 housing market. However, recent inflation data emphasized that the path to 2% inflation is likely to be long, and mortgage rates leveled out in the 6.6% – 6.7% range in January.
“Pending home sales tend to lead existing-home sales by roughly one-to-two months, and are a good indicator of market conditions,” she continued. “Recovering pending home sales activity emphasizes the impact of a small win in affordability, namely lower mortgage rates. Buyers who are currently priced out of the market are eagerly awaiting progress, which could come in the form of lower mortgage rates, more for-sale options, or lower prices. Though an uptick in buyer activity is promising, seller activity may not respond as quickly. If for-sale inventory isn’t able to soak up buyer demand, it is possible that prices will start to climb once again. Inventory is likely to remain low, which will keep home prices high, underlining the importance of mortgage rate improvement for increasing home sales.”
CoreLogic Chief Economist Dr. Selma Hepp commented that, “Reading between the numbers on pending home sales shows that many American consumers emerged from the pandemic with strong credit scores and remain in a good position to buy a home. However, they are also aware that market fundamentals make it somewhat of a challenge to purchase. Prices remain strong, and that won’t change. Recent reductions in the mortgage interest rates, however, are helping to drive the desire to buy.”
