January’s pending home sales picked up right where they left off in 2022, posting the second consecutive month of increases, according to data released Monday by the National Association of Realtors (NAR).
After posting a 2.5% month-over-month increase in December, the Pending Home Sales Index rose 8.1% month over month in January to a reading of 82.5.
“Buyers responded to better affordability from falling mortgage rates in December and January,” Lawrence Yun, NAR’s chief economist, said in a statement.
Despite the strong monthly increase, pending home sales are down 24.1% compared to a year ago. An index of 100 is equal to the level of contract activity in 2001.
NAR expects the economy to continue adding jobs throughout 2023 and 2024, and the 30-year fixed rate mortgage to steadily drop to an average of 6.1% in 2023 and 5.4% in 2024
Despite these conditions, Yun still expects annual existing home sales to drop 11.1% year over year in 2023 to a total of 4.47 million units. In 2024, however, he anticipates an increase in existing home sales of 17.7% annually to 5.26 million units.
On the new home sales front, NAR projects sales to fall 3.7% year over year in 2023 before posting a 19.4% annual jump in 2024.
“Home sales activity looks to be bottoming out in the first quarter of this year, before incremental improvements will occur,” Yun said. “But an annual gain in home sales will not occur until 2024. Meanwhile, home prices will be steady in most parts of the country with a minor change in the national median home price.”
Bright MLS chief economist Lisa Sturtevant added: “The new pending sales data for January provides further evidence that the housing market may have bottomed out at the end of last year. However, it likely won’t be a V-shaped rebound. Instead, expect a bumpy road on the way to a more normal housing market in 2023.”
With the anticipated yearly drop in existing home transaction volume, NAR also expects the national median home price to drop 1.6% in 2023 to $380,100 before rising 3.5% year over year to $391,800 in 2024.
The trade group projects the median price for a new home to rise to $461,000 in 2023, up by 1.3%, and by 2.8% in 2024 to $474,000. The NAR attributes this to the rising costs of land and construction materials.
“In the current housing market, it is a battle between the rational, financial calculus of homebuying and the instinctive, psychological side,” Sturtevant said. “The head versus the heart. For some buyers, higher mortgage rates simply means buying a home is out of the question unless home prices fall. For others, higher mortgage rates will be a hurdle but ultimately will not keep them from getting back into the market after sitting on the sidelines for months.”
On a year-over-year basis, all four of the major U.S. regions recorded declines, with the West recording the largest yearly decline at 29.3%, down to a reading of 66.2.
All four regions experienced increases month over month, with the West posting the largest monthly jump at 10.1%. The South (99.2), the Northeast (68.7), and the Midwest (83.3) rose 8.3%, 6.0%, and 7.9%, respectively.