Contracts signed to buy existing homes in the US rose in January with the biggest monthly increase since June 2020 as the housing market heads into recovery mode.
The National Association of Realtors’ index of pending home sales rose 8.1% in January to 82.5, higher than Bloomberg economists’ expected estimate of 1.0%, according to data the group released Monday. On a year-over-year basis, however, current transactions fell by almost 24%.
The measure, a leading indicator of housing market health, shows how much the market has turned around this year in the wake of slowing house price growth and higher mortgage rates.
“Buyers responded to better affordability from falling mortgage rates in December and January,” NAR chief economist Lawrence Yun said in a statement.
According to NAR, the group expects the economy to remain robust and create more jobs this year and next, with 30-year fixed mortgage rates falling to an average of 6.1% in 2023 and 5.4% in 2024.
Yun said he expects annual sales of existing homes to fall 11.1% in 2023 to a total of 4.47 million units before rising 17.7% in 2024 to a total of 5.26 million units units. NAR expects new home sales to decline 3.7% year-over-year in 2023 and grow 19.4% in 2024.
“Home sales appear to be bottoming out in the first quarter of this year before any incremental improvements are expected,” Yun added. “But an annual increase in home sales will not occur until 2024. Meanwhile, house prices in most parts of the country will be stable with a small change in the national median house price.”
The number of contract signatures increased in each region. Pending sales rose 6.0% in the Northeast, 7.9% in the Midwest, 8.3% in the South and 10.1% in the West. Current home sales fell in all regions compared to a year ago.
“There was an additional bump in the West region due to lower house prices, while gains in the South were driven by stronger job growth in that region,” Yun added.
These figures came in a month when mortgage rates stabilized, the labor market remained resilient and inflation slowly eased. The 30-year fixed mortgage rate was on a downward trend, reaching almost 6% at the end of January compared to mid-November last year, when it peaked at 7%.
“As rates fluctuated in the fall, many buyers dropped out because they could wake up the day after finding their dream home to a three-digit increase in their potential monthly payment,” wrote Redfin Economics Research Lead Chen Zhao, in a press release. rack. “Now they have a better idea of how far their budget goes in which neighborhoods and which houses they can afford.”
Separately, other data shows that new home sales are rising, while existing home sales are falling. The reason: More homeowners of previously owned homes are on cheaper mortgages, making them hesitant to lower their sales prices.
Builders, meanwhile, pull tools from their toolboxes to move inventory. And it seems to work. For example, homebuilder PulteGroup (PHM) is offering a 30-year fixed rate of just 4.25% this quarter and plans to ramp up the pace of new construction.
“Builders not only use incentives to drive sales, such as price reductions, paying points and offering price reductions, but also offer upgrades to appliances and other quality features, essentially giving the buyer more home for the same amount they originally bought. had contracted,” Odeta Kushi, First American Deputy Chief Economist, told Yahoo Finance in a statement.
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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