Weather Continues to Hamper Home Sales

Pending sales changed little from December to January the National Association of Realtors® (NAR) said today.  That is not surprising as the bad weather NAR blamed for the lackluster December pending sales numbers did not change going into January either.

NAR's Pending Home Sales Index (PHSI) inched up 0.1 percent to 95.0 in January while the December number was revised up to 94.9 from the previously announced 92.4.  January pending sales were 9.0 percent below a year earlier when the PHSI was 104.4.  The December index reading was the lowest since November 2011 when it stood at 94.6.

The index is a forward looking indicator based on contract signings for home purchases.  Transactions are generally expected to be finalized within 60 days of contract signing.

Lawrence Yun, NAR chief economist, confirmed that weather remained a factor in January.  "Ongoing disruptive weather patterns in much of the U.S. inhibited home shopping," he said. "Limited inventory also is playing a role, especially in the West, while credit remains tight and affordability isn't as favorable as it was a year ago."

Monthly gains in the South and Northeast were by offset declines in the West and Midwest.  The PHSI in the Northeast rose 2.3 percent to 79.0 in January, but is 5.3 percent below a year ago. In the Midwest the index declined 2.5 percent to 92.9 and is 9.3 percent lower than January 2013. Pending home sales in the South increased 3.5 percent to an index of 111.2 but remained 5.5 percent below a year ago. The index in the West fell 4.8 percent in from December to 84.2, and is 17.5 percent below January 2013.

NAR is projecting that sales of existing home will be weak in the first quarter but prices will continue to rise because of limited inventory. "Increasing new home construction can quickly solve two problems, producing more inventory and taming price growth," Yun said.

Sales should pick up in the middle part of the year and finish just over 5.0 million units for the year, slightly below the volume in 2013.  The national median existing-home price is forecast to grow in the range of 5 to 6 percent.

The Pending Home Sales Index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. 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.