Contract signings posted a major setback in January, sinking to the lowest level in more than three years. But it’s not from a lack of interest. Buyer traffic is reportedly up in most areas of the country in January, according to the latest housing report released by the National Association of REALTORS® on Wednesday.
NAR’s Pending Home Sales Index—a forward-looking indicator based on contract signings—dropped 4.7 percent to a reading of 104.6 in January. The index is now 3.8 percent below a year ago and is at its lowest level since October 2014. The association says a lack of homes for sale and rising interest rates are keeping a lid on sales.
“Last month’s retreat in contract signings occurred because of woefully low supply levels and the sudden increase in mortgage rates,” says Lawrence Yun, NAR’s chief economist. “The lower end of the market continues to feel the brunt of these supply and affordability impediments. With the cost of buying a home getting more expensive and not enough inventory, some prospective buyers are either waiting until listings increase come spring or having to delay their search entirely to save up for a larger down payment.”
Yun says recent surveys of REALTORS® indicated that buyer traffic was up in January compared to a year ago, except in the Northeast, “where the frigid cold snap the first two weeks of the month may have contributed some to the region’s large decline.” But the number of homes for sale in January was at an all-time low for the month and down 9.5 percent compared to a year ago.
Homebuilding is starting to pick up, but Yun says more will be needed to alleviate low inventories. He also hopes institutional investors will soon begin to unload their portfolios of single-family properties onto the market and as-yet reluctant homeowners will decide to sell.
“As new multifamily 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,” Yun says. “Though 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.
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