PhotoAs if to prove that what goes up must come down, pending home sales fell in January following their highest average year in nearly a decade.

The National Association of Realtors (NAR) reports its Pending Home Sales Index (PHSI), a forward-looking indicator based on contract signings, declined 2.5% last month to 106.0. Still, the index is 1.4% above a year ago and, while the PHSI has increased year-over-year for 17 consecutive months, last month’s annual gain was the second smallest during that time frame.

Numerous factors

“While January’s blizzard possibly caused some of the pullback in the Northeast, the recent acceleration in home prices and minimal inventory throughout the country appears to be the primary obstacle holding back would-be buyers,” said NAR Chief Economist Lawrence Yun. “Additionally, some buyers could be waiting for a hike in listings come springtime.”

Existing-home sales increased last month and were considerably higher than the start of 2015, but price growth quickened to 8.2% -- the largest annual gain since April 2015 (8.5%).

While the hope is that appreciating home values will start to entice more homeowners to sell, Yun says supply and affordability conditions won’t meaningfully improve until home builders start ramping up production -- especially of homes at lower price points.

Sales by region

  • The PHSI fell 3.2% to 94.5 in the Northeast but is still 10.9% above a year ago.
  • In the Midwest the index was down 4.9% to 101.1 but is still 1.4% above January 2015.
  • Pending home sales in the South inched up 0.3% to 121.1 but remain 1.3% lower than last January.
  • The index in the West decreased 4.5% in January to 96.5 but is 0.4% above the same month last year. Chief Economist Jonathan Smoke said he expects to see an increase in new contracts in February "as web activity and stated buyer intentions combine with better weather for most of the country to enable an early start to the spring buying season."

In addition, he said, "The existing home market should see marginal growth in 2016, but tight supply will continue to be the biggest inhibitor of sales."

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