January 26, 2024
Pending home sales jumped 8.3% in December to 77.3 after having fallen 0.3% in November. Current homeowners are reluctant to put their homes on the market which would mean trading in their current 3.0-3.5% mortgage rate for a 6.6% rate. As a result, the supply of homes on the market for realtors to show their clients is at a near record low level. But mortgage rates have recently declined from 7.6% to 6.6% which is helping to increase housing affordability. At the same time, home prices have begun to decline. At the moment a median-earning income family has 6% less income than is required to purchase a median-priced home. But in the months ahead falling mortgage rates and home prices combined with steady gains in income suggest that by the end of this year that same median-income earning family will have 25% more income than is required to purchase that median-priced home.
We follow this particular indicator because it is a fairly good indicator of existing home sales a month or two later. As a result, look for a existing home sales to climb sharply in the first couple of months of this year.
This series on pending home sales is collected by the National Association of Realtors and represents contracts signed, but not yet closed, on existing home sales. Thus, it is both a leading indicator of existing home sales and housing market activity in general. Not all these contracts go to completion. The buyer may not qualify for a mortgage, the house may not appraise at a sufficiently high value, or the house may fail the buyer’s inspection. But the series is clearly indicative of changes in housing market activity.
Stephen Slifer
NumberNomics
Charleston, SC
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