Housing market on the rise? Why pending contracts for home sales have industry buzzing.

A slight decline in mortgage rates in December and January contributed to an improvement in pending home sales for a second consecutive month, according to data released Monday by the National Association of Realtors.

The Pending Home Sales Index – a forward-looking indicator of home sales based on contract signings – improved 8% in January. Year-over-year, pending transactions dropped by 24%.

The last time pending contracts registered an above 8% monthly increase was three months after the pandemic lockdown, when showings came to a standstill. In June 2020, pending home sales pace increased 17% compared with the month before.

“Buyers responded to better affordability from falling mortgage rates in December and January,” said NAR Chief Economist Lawrence Yun.

NAR expects that the economy will continue to add jobs throughout 2023 and 2024, with the 30-year fixed mortgage rate steadily dropping to an average of 6.1% in 2023 and 5.4% in 2024.

What is the Pending Homes Sales Index?

The Pending Home Sales Index, a leading indicator of housing activity, measures housing contract activity, and is based on signed real estate contracts for existing single-family homes, condos, and co-ops. Because a home goes under contract a month or two before it is sold, the Pending Home Sales Index generally leads existing-home sales by a month or two.

What does the new housing data mean for buyers and sellers?

The housing market is likely to remain in flux. Sellers are offering some price concessions. But, thanks to higher interest rates, that won't be enough to get some buyers off the fence.

The new pending sales data for January provides further evidence that the housing market may have bottomed out at the end of last year, says Bright MLS Chief Economist Lisa Sturtevant.

“However, it likely won’t be a V-shaped rebound. Instead, expect a bumpy road on the way to a more normal housing market in 2023,” she said.

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