NAR Reports Pending Home Sales Down in December, But Not For Long

By Gretchen Wegrich

Despite a drop in pending home sales during the month of December, contract signings have remained higher than year-ago levels for 20 consecutive months, reported the National Association of Realtors.

November and December saw a decline in home contract signings, which NAR observed was caused by a limited supply of affordable homes in certain markets.

Contract signings on homes –calculated by the NAR Pending Home Sales Index –showed a 4.3 percent decline in December, reaching an index score of 101.7 in contrast to November’s score of 106.3. In spite declining during December, the index score is still elevated 6.9 percent above December 2011 levels, when the index was just 95.1.

The data is indicative only of signed contracts and not actual property closings.

“Regionally speaking, three of four major regions are seeing an increase,” reported Lawrence Yun, NAR chief economist. “It is in the Western region where we are encountering an acute shortage of inventory. This inventory shortage is what is holding back the contract signings.”

Housing market recovery in progress

Despite the shortage, contract activity has been on the rise for 20 straight months on a year-over-year basis, reflecting a housing market recovery that could influence mortgage rates. In a separate study, buyer interest remained high despite a shortage of available property.

Despite a tighter inventory, pent-up demand for housing and affordable purchasing conditions bode well for the housing market. Yun predicted that existing-home sales would increase another 9 percent during 2013, following a 9 percent rise in 2012.

Demand sky-high in the West

In the West, first time home buyers are faced with fewer options, particularly in homes costing less than $100,000.

"We expect a seasonal rise of inventory in the spring to help, but a seller's market may be developing,” said Yun, adding, “Much of the West is already a seller's market for homes priced under a million dollars, but conditions are much more balanced in the Northeast."

By region, the Pending Home Sales Index (PHSI) revealed a year-over-year increase in all regions besides the West. In the Northeast, the PHSI decreased 5.4 percent to 78.8 percent in December but remained 8.4 percent higher than in December 3011. In the Midwest, the index showed an increase of 0.9 percent to 104.8 in December, 14.4 percent higher than a year ago. In the South, pending home sales declined 4.5 percent to 111.5 in December but remained 10.1 percent above December 2011 levels. In the West, the index dropped 8.2 percent in December to 101.0, a decrease of 5.3 percent from last year.

Gretchen Wegrich

Gretchen Wegrich is an editor at Lender411. She specializes in mortgage basics, personal finance and green living. She graduated with a bachelor's degree in writing from University of California, San Diego and previously worked at the Santa Cruz Sentinel. Contact her at gretchen@lender411com.