Improved buyer demand at the beginning of 2015 pushed pending home sales in January to their highest level since August 2013, according to the National Association of Realtors (NAR). All major regions except for the Midwest saw gains in activity in January.
NAR’s Pending Home Sales Index climbed 1.7 percent to 104.2 in January from an upwardly revised 102.5 in December and is now 8.4 percent above January 2014 (96.1). This marks the fifth consecutive month of increasing year-over-year gains.
Lawrence Yun, NAR chief economist, said for the most part buyers in January were able to overcome tight supply.
"Contract activity is convincingly up compared to a year ago, despite comparable inventory levels," Yun said in a statement. "The difference this year is the positive factors supporting stronger sales, such as slightly improving credit conditions, more jobs and slower price growth."
Yun also points to more favorable conditions for traditional buyers entering the market. All-cash sales and sales to investors are both down from a year ago, creating less competition and some relief for buyers who still face the challenge of limited homes available for sale.
"All indications point to modest sales gains as we head into the spring buying season," added Yun. "However, the pace will greatly depend on how much upward pressure the impact of low inventory will have on home prices. Appreciation anywhere near double-digits isn’t healthy or sustainable in the current economic environment."
In the Northeast, pending sales inched up 0.1 percent to 84.9 in January, and is now 6.9 percent above a year ago. In the Midwest the index decreased 0.7 percent to 99.3 in January, but is 4.2 percent above January 2014.
NAR predicts that total existing-homes sales will be around 5.26 million, an increase of 6.4 percent from 2014. The national median existing-home price for all of this year is expected to increase near 5 percent. In 2014, existing-home sales declined 2.9 percent and prices rose 5.7 percent.
According to NAR, in January all-cash sales were 27 percent of sales, down from 33 percent in January 2014. Sales to investors represented 17 percent of the market in January, down from 20 percent a year ago.
The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.
The index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.
An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.
