By Aarthi Swaminathan
The numbers: U.S. pending home sales rose 8.1% in January, according to the monthly index released Monday by the National Association of Realtors (NAR), with sales rising for the second month in a row.
Pending home sales last rose by this much in June 2020, fueled by pandemic buying.
Pending home sales beat analyst expectations. Analysts polled by the Wall Street Journal had forecast the pending home sales index to rise by 0.9%.
Contract signings rose in all four regions on a monthly basis.
Pending home sales reflect transactions for which a contract has been signed for an existing home but the sale has not yet closed.
Economists view it as an indicator of the direction of existing-home sales in subsequent months.
But mortgage rates are back up and applications for mortgages are down, hinting at weakness in the coming weeks for home sales.
Key details: Compared with a year earlier, transactions were down by 24.1%.
On a monthly basis, pending sales rose in all four regions, led by the West, which saw a 10.1% increase in January. The NAR attributed the bump to lower home prices.
Yet the West also saw the largest drop in pending home sales since last January, by 29.3%.
Rates for 30-year fixed-rate mortgages were averaging 6.88% as of Monday morning, according to Mortgage News Daily.
The NAR expects existing-home sales to drop in 2023 by 11.1%, to a total of 4.47 million units. They expect home sales to improve only in 2024, when they anticipate the number to jump by 17.7% to 5.26 million units sold.
The industry group also expects sales of new homes to fall 3.7% in 2023, followed by a sharp increase in sales of 19.4% in 2024.
Big picture: A dip in mortgage rates pushed eager buyers to act, driving sales higher.
But strength in the U.S. economy is helping drive mortgage rates up again, and buyers who didn’t act are back in their seats.
The slowdown in demand will ultimately hit home prices, NAR said. The group expects existing-home prices to fall nationally by 1.6% in 2023, to $380,100.
What the realtors said: “Home sales activity looks to be bottoming out in the first quarter of this year, before incremental improvements will occur,” said Lawrence Yun, chief economist at NAR.
“But an annual gain in home sales will not occur until 2024,” he added. “Meanwhile, home prices will be steady in most parts of the country with a minor change in the national median home price.”
What they’re saying: “Lower mortgage interest rates during the last month of last year and early this year have had a positive impact on the housing market, as we have also seen in new and existing home sales over the last several months,” Eugenio Aleman, chief economist and senior vice president of Raymond James, wrote in a note.
“However, the recent reversal in mortgage interest rates should bring some more pain to the housing market going forward,” he added.
Market reaction: The Dow Jones Industrial Average and the S&P 500 were up in early trading on Monday. The yield on the 10-year Treasury note was trading below 3.92%.