The Scotsman Guide - Victor Whitman - 27 February 2017
Low inventories of homes for sale, rising prices and higher mortgage rates appear to be taking a toll on the U.S. housing market.
Pending home sales fell to the lowest level in 12 months as contract activity cooled in the West and Midwest regions, according to the National Association of Realtors (NAR).
Pending sales of existing homes fell 3.1 percentage points to 106.4 in January, the lowest level of the index since January 2016, NAR reported.
The U.S. housing market began the year strongly, with solid increases in both existing and new-home sales. Existing home sales were running at annual rate of 5.69 million in January, the strongest pace in nearly a decade. Sales of new homes rose 3.7 percent in January to a seasonally adjusted annual rate of 555,000 units, which was also 5.5 percent above the January 2016 estimate of 526,000.
Fewer contract signings, however, likely means that home sales will fall over the next couple of months, NAR’s Chief Economist Lawrence Yun said.
“The buyers are becoming hesitant,” Yun said during a webcast. “Perhaps it is due to affordability challenges, higher mortgage rates, higher home prices. There are significant inventory challenges.”
NAR’s indices charting contact activity in the West and Midwest regions are now below the levels of a year ago. In the West, the index declined by 9.8 percent in the month and is now 0.4 percent below the level in January 2016. Contract activity in the Midwest fell by 5 percent in the month, and is 3.8 percent below the activity a year earlier.
Contract signings stepped up in the South and the Northeast regions during the month, and pending sales were running ahead of last January’s levels by 2 percent in the South and 3.6 percent in the Northeast.
Yun said the drop in activity in the West is not surprising. Home prices have risen significantly in Washington, Oregon, Idaho, Utah and several Californian cities. In the West, job growth has been healthy, but home prices have increased at three times the pace of wages.
“The West region is facing the greater affordability problem,” Yun said.
NAR has predicted that home sales will run at around 5.57 million this year, up 2.2 percent from 2016 (5.45 million). The national median existing-home price this year is expected to increase by around 4 percent. In 2016, existing sales rose 3.8 percent and prices increased 5.1 percent over the 2015 level, NAR said.