The spring home buying season is already beginning as pending home sales reversed course and increased in much of the country in February, according to the latest report from the National Association of Realtors.
The pending home sales index, a forward-looking indicator based on contract signings, increased 3.1% to 107.5 in February, up from a downwardly revised 104.3 in January. But even with this increase, pending home sales are still down 4.1% from February 2017.
“Contract signings rebounded in most areas in February, but the gains were not large enough to keep up with last February’s level, which was the second highest in over a decade,” NAR Chief Economist Lawrence Yun said. “The expanding economy and healthy job market are generating sizable homebuyer demand, but the miniscule number of listings on the market and its adverse effect on affordability are squeezing buyers and suppressing overall activity.”
“Expect ongoing volatility in the Northeast region at least through March,” Yun said. “Although pending sales there bounced back in February following January’s cold weather-related decline, the multiple winter storms over these last few weeks likely put a chill on contract signings once again this month.”
But as the spring home buying season begins, potential homebuyers and even sellers will have to face the increase in mortgage rates from last year. Home prices have grown 5.9% so far in 2018, which will only place further restraints on their budget.
NAR explained that rising interest rates could hold back some sellers who are reluctant to lose their lower interest rate, especially if they refinanced in recent years.
“Homeowners are already staying in their homes at an all-time high before selling, and any situation where they remain put even longer only exacerbates the nation’s inventory crunch,” Yun said. “Even if new home construction starts picking up at a faster pace this year, as expected, existing sales will fail to break out if these record low supply levels do not recover enough to meet demand.”
Yun forecasted existing home sales will remain flat from 2017 at 5.51 million sales in 2018. The national median existing home price is forecasted to increase about 4.2% from the year before. In 2017, existing home sales increased 1.1% and home prices rose 5.8%.