Pending home sales dropped significantly in January, according to recent research from the National Association of Realtors. The organization's Pending Home Sales Index fell 2.8 percent last month to its lowest level in a year. NAR analysts have attributed the decrease to descending home inventory levels and higher prices. The latter variable is particularly problematic, as increased home appreciation weighs on buyers or drives them out of the market altogether.
"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," Lawrence Yun, chief economist for the NAR, explained. "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."
This surprising downturn comes after encouraging December sales numbers catalyzed enthusiasm across the industry. However, the annual housing outlook remains positive. The NAR expects existing home sales to rise 2.2 percent in 2017 to 5.57 million. Additionally, increasing appreciation will certainly benefit homeowners and first-time buyers who purchase properties over the next 10 months.
Inventories shrink and prices rise
Even so, inventories across the country continue to shrink, as builders struggle with labor shortages. Total inventory is down 7 percent, according to Reuters. This is expected to continue throughout 2017, leading to increased competition and higher home prices.
"Inventories of unsold homes remained near a record low … which is liable to be a bigger problem for sales during the ramp-up into the key spring selling season than it is in the middle of the winter, when sales are at their seasonal low point," Ted Wieseman, an economist for Morgan Stanley, told the wire service.
Currently, the average sticker is up more than 7 percent, compared to figures from last year. This hampers house hunters, many of whom are working with tight budgets to begin with. Some markets are bucking this trend, however. For instance, sales and prices are both up on the West Coast and are expected to remain elevated, in tandem, for the remainder of the year, according to the NAR.
Market acceleration from Trump
Some in the industry believe President Donald Trump may lend struggling house hunters a helping hand, Reuters reported. The president is expected to introduce financial reforms that would accelerate economic growth and potentially boost consuming buying power. He also plans to dismantle existing financial regulations to spur competition in the marketplace. Should these developments unfold as planned, homebuyers of all stripes may find themselves in better financial positions.
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