A lull in contract activity in the Midwest and West dragged pending home sales down to their lowest level in a year in January.
The National Association of Realtors (NAR) reports its Pending Home Sales Index (PHSI) dipped 2.8% last month to 106.4. Although its most recent reading was lower, the PHSI is 0.4% above its level at the same time a year earlier.
Home shoppers in January faced numerous obstacles as they sought to buy a home.
"The significant shortage of listings last month along with deteriorating affordability as the result of higher home prices and mortgage rates kept many would-be buyers at bay," said NAR Chief Economist Lawrence Yun. "Buyer traffic is easily outpacing seller traffic in several metro areas and is why homes are selling at a much faster rate than a year ago. Most notably in the West, it's not uncommon to see a home come off the market within a month."
Buying interest on the rise
Interest in buying a home is the highest it has been since the Great Recession, according to Yun, with households feeling more confident about their financial situation. Job growth is strong in most of the country and the stock market has seen record gains in recent months.
Yun points out that while these factors bode favorably for increased sales in coming months, buyers are dealing with challenging supply shortages that continue to run up prices in many areas.
"January's accelerated price appreciation is concerning because it's over double the pace of income growth and mortgage rates are up considerably from six months ago," said Yun. "Especially in the most expensive markets, prospective buyers will feel this squeeze to their budget and will likely have to come up with additional savings or compromise on home size or location."
- The PHSI in the Northeast rose 2.3% to 98.7 in January, and is now 3.6% above a year ago.
- Pending home sales in the South inched up 0.4% to an index of 122.5 and are now 2.0% above last January.
- In the Midwest the index was down 5.0% to 99.5, and is now 3.8% lower than January 2016.
- The index in the West plunged 9.8% in January to 94.6, and is now 0.4% lower than a year ago.