Because of insufficient supply levels, contract activity in the West and Midwest decreased, dragging down pending home sales to their lowest level in a year, according to Monday’s report by the National Association of Realtors.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, dipped 2.8% to 106.4 in January, down from December’s upwardly revised 109.5. The index is still up 0.4% from last January, but is at its lowest since then.

“The significant shortage of listings last month along with deteriorating affordability as the result of higher home prices and mortgage rates kept many would-be buyers at bay,” NAR Chief Economist Lawrence Yun said.

“Buyer traffic is easily outpacing seller traffic in several metro areas and is why homes are selling at a much faster rate than a year ago,” Yun said. “Most notably in the West, it’s not uncommon to see a home come off the market within a month.”

This demand is so high, in fact, that interest in buying a home hit its highest point since the Great Recession. As households grow more confident in their personal finances and job growth continues throughout the country, home sales increase across the country, Yun explained. However, the increase in demand and shortage of supply continually leads to rising home prices.

“January’s accelerated price appreciation is concerning because it’s over double the pace of income growth and mortgage rates are up considerably from six months ago,” Yun said. “Especially in the most expensive markets, prospective buyers will feel this squeeze to their budget and will likely have to come up with additional savings or compromise on home size or location.”

Existing home sales are projected to hit 5.57 million for the year, an increase of 2.2% from 2016, while the national median existing-home price is expected to increase 4%. This is compared to 2016 when existing homes sales increased 3.8% and home prices rose 5.1%.

“Sales got off to a fantastic start in January, but last month’s retreat in contract signings indicates that activity will likely be choppy in coming months as buyers compete for the meager number of listings in their price range,” Yun said.

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