Pending home sales rise as economic gains drive demand
A measure of contract signings to buy existing homes rose in December for a third month, giving sales some momentum at the start of 2018, according to data released Wednesday by the National Association of Realtors.
The index rose 0.5% month-over-month (matching the estimate) after an upwardly revised 0.3% increase —the highest level since March. The gauge decreased 1.8% year-over-year on unadjusted basis after rising 0.6% in November.
While the increase in contract signings suggests sales of previously owned homes will pick up in the coming months, the Realtors group says low supply levels and the impact of the new tax law will constrain any gains in 2018. The legislation limits deductions for mortgage interest and property taxes, changes that are expected to affect high-cost housing markets such as the New York City region.
Existing-home sales fell in December for the first time in four months, as the market struggles with record-low supply. Even with steady job growth underpinning the housing market, rising home prices and limited options may stifle would-be buyers.
"Jobs are plentiful, wages are finally climbing and the prospect of higher mortgage rates are perhaps encouraging more aspiring buyers to begin their search now," NAR Chief Economist Lawrence Yun said in a statement. "Sadly, these positive indicators may not lead to a stronger sales pace. Buyers throughout the country continue to be hamstrung by record low supply levels that are pushing up prices — especially at the lower end of the market."
Contract signings rose 2.6% in the South, up 1.5% in the West. Purchase agreements fell 5.1% in the Northeast and 0.3% in the Midwest. Economists consider pending sales a leading indicator for the housing sector because they track contract signings, which typically parallel the level of closings on existing homes within two months.