Pending Home Sales Swell to Highest Level in a Year and a Half

A rise in home purchase contracts and relatively low inventory bodes well for sellers heading into the spring market.

Improved buyer demand at the beginning of 2015 pushed pending home sales in January to their highest level since August 2013, according to the NATIONAL ASSOCIATION OF REALTORS®. All major regions except for the Midwest saw gains in activity in January.

NAR’s Pending Home Sales Index measures the number of homes that have sold, but not yet made it to the closing table. Real estate purchase contracts climbed 1.7% in January and are up 8.4% from this time last year. This marks the fifth consecutive month of year-over-year gains with each month accelerating the previous month’s gain.

Homebuyers continue to face a tight supply of homes for sale, particularly entry-level homes, in many housing markets, according to NAR Chief Economist Lawrence Yun. But having pending sales rise, despite the fact that in many markets buyers have limited choices, bodes well for homeowners looking to sell this spring.
 
“Contract activity is convincingly up compared with a year ago despite comparable inventory levels,” he said. “The difference this year is the positive factors supporting stronger sales, such as slightly improving credit conditions, more jobs and slower price growth.”

Yun also points to more favorable conditions for traditional buyers entering the market. Investors, who often offer appealing cash deals to homesellers, are less active. Fewer all-cash buyers make for less competition for homebuyers who purchase with a mortgage.

“All indications point to modest sales gains as we head into the spring buying season,” said Yun. “However, the pace will greatly depend on how much upward pressure the impact of low inventory will have on home prices. Appreciation anywhere near double digits isn’t healthy or sustainable in the current economic environment.”

NAR predicts 5.26 million homes will change hands in the year ahead, an increase of 6.4% from 2014. The national median existing home price for all of this year is expected to increase around 5%.

Pending Home Sales by Region