Pending home sales inched up slightly in November, indicating that existing home sales will also inch up in December, according to the latest release from the National Association of Realtors.
But even as home sales increase at the end of this year, headed into 2018, NAR forecasts existing home sales and home price growth will slow primarily due to the altered tax benefits of homeownership in some high cost areas.
The Pending Home Sales Index, a forward-looking indicator based on contract signings, increased 0.2% to 109.5 in November, up from 109.3 in October. This modest increase means the index remains at its highest reading since June, and is up 0.8% from last year.
“All of the leading indicators of housing activity, pending home sales, purchase applications from the MBA's mortgage applications survey, and the National Association of Homebuilder's housing market index, have pointed higher in recent months, suggesting that home sales ended the year on a high note,” Nationwide Chief Economist David Berson said.
“Since pending home sales are measured at contract signing and existing home sales are measured at contract closing, this is a good one-to-two month leading indicator of existing sales, suggesting that December existing sales will also rise modestly, helping to bring existing sales to their highest annual sales pace since 2006,” Berson said.
And NAR agreed existing home sales will end the year on a solid note.
“The housing market is closing the year on a stronger note than earlier this summer, backed by solid job creation and an economy that has kicked into a higher gear,” NAR Chief Economist Lawrence Yun said.
“However, new buyers coming into the market are finding out quickly that their options are limited and competition is robust,” Yun said. “Realtors say many would-be buyers from earlier this year, stifled by tight supply and higher prices, are still trying to buy a home.”
Yun explained that in 2018, the depressed levels of supply will need to improve enough to slow price growth and make home buying more affordable. Last month, home prices increased 5.8% while the supply of homes slipped to 3.4 months, the lowest level since NAR began tracking in 1999.
“The strengthening economy and expectation that more Millennials will want to buy serve as promising signs for solid home buying demand next year, while also putting additional pressure on inventory levels and affordability,” Yun said. “Sales do have room for growth in most areas, but nationally, overall activity could be slightly negative. Markets with high home prices and property taxes will likely feel some impact from the reduced tax benefits of owning a home.”
NAR predicts existing home sales will finish 2017 at 5.54 million, an increase of 1.7% from 5.45 million in 2016. The national median existing home price is expected to increase about 6%. And in 2018, NAR forecasted there will be essentially no change, a decline of just 0.4%, in existing home sales to 5.52 million while price growth will moderate to about 2%.