A lull in contract activity in the Midwest and West due to insufficient supply dragged pending home sales in January down to their lowest level in a year.
The National Association of Realtors reports its Pending Home Sales Index (PHSI) fell 2.8% last month to 106.4. While that reading is 0.4% above a year ago, it's the lowest since then.
But lower inventories wasn't the only problem home shoppers face.
"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."
Interest in buying a home is the highest it has been since the Great Recession, according to Yun. Households are 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.
While these factors bode well 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.
- In the Midwest the index was down 5.0% to 99.5, and is now 3.8% lower than January 2016.
- Pending home sales in the South inched up 0.4% to a reading of 122.5 and are now 2.0% higher than they were a year earlier.
- The index dropped 9.8% in the West to 94.6, for a year-over-year decline of 0.4%.
Existing-home sales this year are projected to rise 2.2% from 2016 to around 5.57 million. The national median existing-home price the point at which half the homes sell for more and half for less this is expected to rise around 4%. Last year, sales were up 3.8% and prices jumped 5.1%.
"Sales got off to a fantastic start in January,” said Yun, “but last month's retreat in contract signings indicates that activity will likely be choppy in coming months as buyers compete for the meager number of listings in their price range."