The Pending Home Sales Index, created by the National Association of Realtors (NAR) decreased by almost 4 percent to 100.7 during the month of December. This is a drop from the 104.6 in November, but remains 6 percent higher than the same month in 2013.
This slowdown came in spite of the lowest levels of interest rates of 2014. Lawrence Yun, NAR chief economist, believes that fewer homes available and a slight increase in home prices contributed to December’s slowdown.
“Total inventory fell in December for the first time in 16 months, resulting in fewer choices for buyers and a modest uptick in price growth in markets throughout the country,” said Yun in a statement. “With interest rates at lows not seen since early 2013, the strength in existing-sales in upcoming months will largely depend on the willingness of current homeowners to realize their equity gains from the past couple years and trade up.”
Pending home sales declined in all regions, with the Northeast experiencing the sharpest drop at 7.5 percent. Sales in the Midwest decreased by 2.8 percent, the South by 2.6 percent and the West by 4.6 percent. Although all regions declined, they were all still ahead of the year-to-year totals from 2013.
“More jobs, increasing consumer confidence, less expensive mortgage insurance and new low down payment programs coming into the marketplace will likely lead to more demand from first-time buyers,” added Yun.
Home prices are expected to rise slowly through 2015 which should encourage new home sales. With more investors leaving the marketplace, the price of homes should stabilize. Rising prices mean that there are not as many bargains on the market. The lack of bargains will make housing less attractive to investors, leaving it more open to home buyers.
“Since the recovery began in earnest in late 2012, buyers have really taken it on the chin, forced to contend with low inventory, tight credit, bidding wars and intense competition from investors and all-cash buyers,” says Stan Humphries, chief economist at Zillow, to Forbes.
