Home price growth is softening, inventory is ticking up, and mortgage rates are lower than last year. That should be enough to move homebuyers off the sidelines, right?
Wrong.
Pending home sales, which reflect contract signings for homes that have not closed, dropped 0.8 percent month over month and 0.4 percent year over year in January. On a regional basis, monthly pending home sales increased in the Midwest and West, and declined in the Northeast and South. Meanwhile, annual pending home sales rose in the South and West and dropped in the Northeast and Midwest.
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The National Association of Realtors Chief Economist Lawrence Yun said strengthening market tailwinds aren’t pulling homebuyers to shore.
Lawrence Yun | Chief economist at the National Association of Realtors
“Improving affordability conditions have yet to induce more buying activity,” he said in a written statement on Thursday. “With mortgage rates nearing 6 percent, an additional 5.5 million households that could not qualify for a mortgage one year ago would qualify at today’s lower rates. Most newly qualifying households do not act immediately, but based on past experience, about 10 percent could enter the market — potentially adding roughly 550,000 new homebuyers this year compared with last year.”
Although January’s pending sales foretell weak February existing-sales, First American Senior Economist Sam Williamson said metro-level data offers more than a few silver linings.
“It’s also worth treating January data with caution. Seasonal slowdowns and winter weather can distort both contract activity and closings, and existing-home sales also posted a sizable decline in January,” Williamson said in an emailed statement. “The softer pace is also giving supply more time to catch up ahead of the busy spring home-buying season: single-family inventory rose 4.7 percent from December, and months’ supply increased to 4.2 months on a seasonally adjusted basis, up from 3.8 months.”
Sam Williamson, senior economist, First American
“More homes on the market should give buyers more options and help keep price pressures in check as activity picks up,” he added. “Several large metros also stood out for stronger annual gains — Phoenix, Boston, and Charlotte, each up about 11 percent, along with San Francisco and Oklahoma City — signs that buyer interest is beginning to re-emerge where conditions are improving.”
Bright MLS Chief Economist Lisa Sturtevant said homebuying activity will likely improve this spring, as homebuyers—hopefully—lean into their market power.
Dr. Lisa Sturtevant | Bright MLS
“It is likely that we will see more homebuying activity over the coming months as inventory improves,” she emailed Inman. “Spring is typically the busiest market when homes sell the quickest and offers come in at or above list price. But this year buyers will have more leverage than they have had in recent years.
“Sellers will need to get their home ‘move-in ready’ and priced appropriately if they want a quick sale.”
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