The Pending Home Sales Index declined by 2.8% to 88.9 based on contracts signed for existing homes in January from a downwardly revised 91.5 in December.
Lawrence Yun, NAR chief economist, points to the broader trend. “The housing market is healing with sales fluctuating at times, depending on the flow of distressed properties coming on the market,” he said.
“While home buyers over the past two years have been exceptionally successful with historically low default rates, there is still an elevated level of shadow inventory of distressed homes from past lending mistakes that need to go through the system,” Yun said. “We should not expect the recovery to be in a straight upward path – it will zig-zag at times.”
He continued to point to favorable tailwinds for the market, including job growth, the high level of affordability, rising rents and even talk that some buyers may be looking to real estate as a hedge against potential future inflation.
In my view, his comment that the market is starting to heal but the recovery is unlikely to be a straight upward path makes sense.
But I believe he is putting too much stock is job growth, rising rents and inflation talk.
At this point in the housing cycle, the high level of unemployment and uncertainty over prices remains a huge stumbling block to an eventual foundation that’s needed under the market.
And mortgage rates that fell to almost 4% on a 30-year fixed rate did little to support sales amid the uncertainty swirling around housing.
At best, the market has shaken off the downward spiral caused by the expiration of the tax credit. Eliminate the government incentive and the chart above suggests sales have been flat for about two years.
One caveat: As any realtor knows, nasty weather such as snow, blizzards and rain will keep buyers inside, which potentially delayed some signings.
We’ll need to look at February and March to get a clearer pictures of what’s going on.
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