Higher Prices Prompt Buyers to Slow Search

DAILY REAL ESTATE NEWS | THURSDAY, DECEMBER 29, 2016

Pending home sales softened in November as contracts dipped to the lowest level in nearly a year as would-be buyers were greeted with higher mortgage rates and home prices, the National Association of REALTORS® reports. The Northeast was the only major region in the U.S. to see a monthly gain in pending sales last month.

NAR’s Pending Home Sales Index, a forward-looking indicator based on contract signings, dropped 2.5 percent in November to a reading of 107.3. The index is now at its lowest reading since January.

Pending Home Sales By Region

Here’s how pending home sales fared across the country in November, according to NAR’s Pending Home Sales Index.

  • Northeast: Pending home sales inched forward 0.6 percent to 97.5 in November, and are now 5.7 percent above a year ago.
  • Midwest: Pending home sales dropped 2.5 percent to a reading of 103.5 in November in NAR’s index. Pending home sales are now 2.4 percent lower than November 2015.
  • South: Pending home sales dropped 1.2 percent to an index of 118.7 in November and are now 1.3 percent lower than last November.
  • West: Pending home sales dropped 6.7 percent in November to 101.0, and are now 1 percent below a year ago.

Source: National Association of REALTORS®

Ongoing inventory shortages in many markets and a surge in mortgage rates likely prompted the stall in pending sales last month, says Lawrence Yun, NAR’s chief economist.

“The budget of many prospective buyers last month was dealt an abrupt hit by the quick ascension of rates immediately after the election,” Yun says. “Already faced with climbing home prices and minimal listings in the affordable price range, fewer home shoppers in most of the country were successfully able to sign a contract.” 

Yun says the higher borrowing costs likely will continue to slow the housing market into 2017 as well. That said, the higher rates may be partially offset by stronger wage growth due to the addition of 2 million net new jobs expected to come in the new year, according to NAR’s most recent HOME survey.

“Healthy local job markets amidst tight supply means many areas will remain competitive with prices on the rise,” Yun says. “Those rushing to lock in a rate before they advance even higher will probably have few listings to choose from. Some buyers will have to expand the area of their home search or be forced to delay in order to save a little more money for their down payment.”

NAR is forecasting that existing-home sales will close out 2016 at a pace of around 5.42 million, which would be the highest since 2006 (6.48 million). Sales are forecasted to increase about 2 percent to around 5.52 million in 2017. The national median existing-home price is expected to rise about 5 percent this year and 4 percent in 2017.

“Much more robust new home construction is needed to relieve inventory shortages and lessen the affordability pressures present throughout the country,” Yun says.

Source: National Association of REALTORS®