The number of contracts signed to buy previously owned homes was nearly flat in December at a 0.1% increase, as a surge of contracts in the Northeast offset declines in other regions, the National Association of Realtors said Thursday.
NAR’s Pending Home Sales Index, which tracks contract signings (as opposed to closed sales) for previously owned homes, rose just 0.1% in December to a level of 106.8. (An index of 100 represents an average level of contract activity.) That level was 4.2% above December 2014, when the index stood at 102.5, and marks the 16th consecutive month of year-over-year gains. December’s numbers missed the consensus 0.8% rise anticipated by economists surveyed by
“Warmer than average weather and more favorable inventory conditions compared to other parts of the country encouraged more households in the Northeast to make the decision to buy last month,” said Lawrence Yun, NAR’s chief economist. "Overall, while sustained job creation is spurring more activity compared to a year ago, the ability to find available homes in affordable price ranges is difficult for buyers in many job-creating areas. With homebuilding still grossly inadequate, steady price appreciation and tight supply conditions aren’t going away any time soon.”
Prior to December, pending sales declined on a monthly basis during three of the four preceding months--November, September and August--as would-be buyers grappled with limited supply and rising prices. Pending sales have in fact been slowing since peaking at a more than nine-year high in May. On a year-over-year basis, all of the months in 2015 clocked an annual increase in signed contracts, but the pace of this increase slowed throughout the year, says Ralph McLaughlin, chief economist at Trulia. "Monthly year-over-year gains dropped from a high of 12.1% in February to 2.5% in November, but rebounded to 4.2% in December," McLaughlin says. "A sharp drop in inventory from December 2014 likely suppressed end of the year gains."
Other data underscore the ongoing lack of housing supply. In December, sales of previously owned homes hit their highest pace since 2006. But by the end of the month, the supply of available existing-homes for sale fell to 1.79 million, a 3.9-month supply at the current sales pace. (A six-month supply is considered a healthy market.) Builders aren't keeping pace: although 2015 finished with more new homes built than 2014, construction is still well below historic norms. Economists say about 1.5 million new homes are needed per year to meet demand. The shortage is particularly acute at the lower end of the market, making conditions tougher for first-time buyers who'd like to escape rapidly escalating rental prices. While it's not the greatest time to be a renter, conditions point to a strong market for investing in rental housing.
Though these problems in the market will likely remain for some time, yesterday's new home sales report showed that the median and average new home prices are declining, indicating that builders are finally offering more entry-level and affordable homes, says Realtor.com's chief economist Jonathan Smoke. "In December, the median new home price of $288,900 was down from November and down from last year. The median new home price was down 4.5% over last year. This is what we need to see if builders are aiming to grow sales to first-time buyers by providing more affordable, entry-level homes," Smoke said.
Pending sales are considered a more timely gauge of the market than other reports because they are forward-looking, based on contracts signed as opposed to closed transactions. (Closings generally come one to two months after a contract is signed.)
December pending home sales rose compared to November in the Northeast but fell in the West, Midwest and South. The index tracking pending contracts in the Northeast rose 6.1% in December to 97.8, a level 15.3% above one year ago. The Midwest index fell 1.1% to 103.6 in December, or 3.6% above December 2014. The Southern index also declined 0.5% to 119.3 in December, but was 1% above one year earlier. The Western region’s index dropped 2.1% in December to 97.5, or 3.4% above a year ago.
NAR expects 2016’s national median existing-home price to increase between 4 and 5%. In 2015 prices rose 6.8%; in 2014 it rose 5.7% to $208,100, and in 2013, 11.5%. Existing-home sales in 2016 are forecast to be around 5.34 million, a 1.5% increase from last year.
Rents in 2016 are expected to grow about 3.3%, down from last year's 3.6% growth. Multifamily housing starts are expected to reach 420,000 units, the highest level since 1987.
