Pending home sales up 0.5 percent in December

WASHINGTON — Pending home sales were up slightly in December for the third consecutive month, according to the National Association of Realtors. In 2018, existing-home sales and price growth are forecast to moderate, primarily because of the new tax law’s expected impact in high-cost housing markets.

The Pending Home Sales Index, ( www.nar.realtor/ pending-home-sales),

a forward-looking indicator based on contract signings, moved higher 0.5 percent to 110 percent in December from an upwardly revised 109 in November. With last month’s modest increase, the index is now 0.5 percent above what it was a year ago.

Lawrence Yun, NAR chief economist, says pending sales edged up in December and reached their highest level since last March, at 111 percent.

“Another month of modest increases in contract activity is evidence that the housing market has a small trace of momentum at the start of 2018,” Yun said. “Jobs are plentiful, wages are finally climbing, and the prospect of higher mortgage rates are perhaps encouraging more aspiring buyers to begin their search now.”

“Sadly, these positive indicators may not lead to a stronger sales pace. Buyers throughout the country continue to be hamstrung by recordlow supply levels that are pushing up prices — especially at the lower end of the market.”

The uninterrupted supply-and-demand imbalances throughout the country fueled price appreciation to 5.8 percent in 2017, which was the sixth straight year of gains at or above 5 percent. While tight inventories are still expected to put upward pressure on prices in most areas this year, Yun said he expects overall price growth to shrink, with some states even experiencing a decline, because of the negative effect of the changes to the mortgage-interest deduction and state and local deductions under the new tax law. See NAR’s 2018 state forecast for a look at home price projections: http://economistsout look.blogs.realtor.org/2018/01/09/taxreform

“In the short term, the larger paychecks most households will see from the tax cuts may give prospective buyers the ability to save for a larger down payment this year, and the healthy labor economy and job market will continue to boost demand,” Yun said. “However, there’s no doubt the nation’s most expensive markets with high property taxes are going to be adversely impacted by the tax law.”

Yun added that it is uncertain just how severe the impact will be, but with home ownership now less incentivized in the tax code, sellers in the upper end of the market may have to adjust their price expectations if they want to trade down or move to less expensive areas. This could in turn lead to both a decrease in sales and home values.

After expanding 1 percent in 2017 to 5.51 million, Yun does anticipate a slight increase (0.5 percent) in existing sales this year (5.54 million). Single-family-housing starts are forecast to jump 13 percent to 961,000, which will push new home sales up 15.3 percent to 701,000 (608,000 in 2016).

The PHSI in the Northeast dipped 5.1 percent to 93 percent in December and is now 2.7 percent below a year ago. In the Midwest, the index decreased 0.3 percent to 105.0 in December but is still 0.3 percent higher than December 2016.

Pending home sales in the South grew 2.6 percent to an index of 126.9 in December and are now 4.0 percent higher than last December. The index in the West rose 1.5 percent in December to 101.7 but is still 3.1 percent below a year ago.