U.S. pending home sales dipped to the tune of 0.3% in December following a 2.6% drop in November, according to a report from the National Association of Realtors. It’s the fourth consecutive monthly decline, but many industry observers see big potential for the housing market in the year ahead.
Contract signings rose 21.4% from December 2019, with all regions (Northeast, Midwest, South, West) reaching double-digit year-over-year increases. Realtor.com’s Housing Market Recovery Index showed significant contract growth, specifically in Portland, Las Vegas, Denver, Los Angeles, and Boston.
“Despite some weakness in pending sales in recent months, existing home sales continue to happen at breakneck pace, and December’s pending home sales suggest that the housing market is largely holding onto these gains,” said Danielle Hale, realtor.com chief economist. “Greater participation of sellers and builders in the months ahead will make home sales possible while easing some of the pressure on price growth, which is currently rising at a double-digit percent rate and has been for almost six months.”
The overall drop in pending home sales over the final quarter of 2020 can be contributed to a lack of inventory in the housing market, according to Lawrence Yun, NAR’s chief economist.
“There is a high demand for housing and a great number of would-be buyers, and therefore sales should rise with more new listings,” Yun said. “This elevated demand without a significant boost in supply has caused home prices to increase and we can expect further upward pressure on prices for the foreseeable future.”
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Added Ruben Gonzalez, Keller Williams’ chief economist: “It may be several months before substantial progress is made in terms of available supply, and price growth will likely continue to accelerate until conditions improve.”
Home prices soared 9.5% in November compared with 12 months ago, according to CoreLogic‘s Case-Shiller index – the largest increase since May 2014.
But a promising 2021 for homebuyers is on the horizon, Yun said, with low mortgage rates and a fiscal stimulus expected to be passed by the Biden administration, which should bolster the housing market.
“I expect the 30-year fixed mortgage rate to average 3%, with the Federal Reserve refraining from any rate increases this year,” he said. “There will also be slower home price appreciation – likely 6.6% – as increased confidence from homebuilders will ultimately lead to an increase in housing starts.”
With rates remaining low, existing-homes sales are likely to reach 6.49 million in 2021, Yun said. That would be a 15% increase from 5.64 million in 2020.
Pending home sales saw a drop only in the Midwest, which reported a 3.6% drop. The Northeast (3.1%), South (0.1) saw increases in the December Pending Home Sale Index, while the housing market in the West remained unchanged.