Despite increasing for the second consecutive month in January, pending home sales remained significantly below January 2022 levels, according to the National Association of Realtors (NAR).
The Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contract signings, improved 8.1% on a month-over-month basis to a reading of 82.5 in January. However, pending transactions fell 24.1% on a year-over-year basis. A PHSI reading of 100 is equal to the level of contract activity in 2001.
NAR chief economist Lawrence Yun says the monthly uptick in activity reflects buyers’ response to improved affordability conditions in December and January.
“Home sales activity looks to be bottoming out in the first quarter of this year, before incremental improvements will occur,” says Yun. “But an annual gain in home sales will not occur until 2024. Meanwhile, home prices will be steady in most parts of the country with a minor change in the national median home price.”
The NAR forecasts the economy will continue to add jobs through both 2023 and 2024, with the 30-year fixed mortgage rate declining to an average of 6.1% this year and 5.4% next year. Yun forecasts annual existing-home sales to fall 11.1% in 2023 to a total of 4.47 million units before increasing 17.7% in 2024. New-home sales are projected to fall 3.7% year over year in 2023 before rebounding and increasing 19.4% next year, according to the NAR.
Prices are projected to remain stable for most markets, with the national median home price decreasing by 1.6% to $380,100 in 2023 before rising 3.1% in 2024. The NAR forecasts median new-home prices will rise by 1.3% this year to $461,000 and increase by an additional 2.8% in 2024, reflecting higher costs of land and construction materials.
On a regional basis, the Northeast PHSI increased 6% on a month-over-month basis in January but fell 19.8% compared with January 2022.
The Midwest index increased 7.9% in January compared with December but fell 21.1% compared with a year ago.
In the South, the PHSI increased 8.3% in January but fell 24.7% on a year-over-year basis.
The West index rose 10.1% on a month-over-month basis but dropped 29.3% compared with January 2022.
