Pending Home Sales Fell Off In January

Pending home sales contracted in January as rate-sensitive buyers skipped out despite increasing inventory.

NAR’s Pending Home Sales Index fell by 4.9% month-over-month to a reading of 74.3 in January. An index of 100 is equal to the level of contract activity in 2001.

Year-over-year, they were down 8.8%.

“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.”

All four U.S. regions saw declines in year-over-year sales, while month-over-month sales actually rose in the Northeast and West.

Yun noted that Southern states and the Rocky Mountain time zone have seen particularly strong job growth, a boon for homebuying, but demand depends on other factors.

“The timing and number of purchases will largely depend on the prevailing mortgage rates and inventory availability,” he said.

Listings are rising as sellers give up the wait for a more lucrative moment. However, buyers are hesitant despite their increased options thanks to the cost of purchasing a new house. Rates above 7% and record-high prices are keeping affordability constrained.

The typical monthly mortgage payment is now $2,671, just a few dollars short of October 2023’s all-time high.

Potential buyers need to earn nearly $50,000 more now than in 2020 to comfortably make a purchase. The median income has only grown 23% in the same time period, however.

“Buyers are getting creative to make a purchase pencil out, and long-distance movers are targeting less expensive and less competitive metros. Mortgage rates easing down has helped some, but the key to improving affordability long term is to build more homes,” Orphe Divounguy, a senior economist at Zillow, said.