Pending Home Sales Index (PHSI) Meets Forecast, Points to Future Expansion

The Pending Home Sales Index (PHSI) rose 0.5% to 110.1 in December from an upwardly revised 109.6 in November, meeting forecasts and indicating improvement in the months ahead. With last month’s modest increase, the National Association of Realtors (NAR) index is now 0.5% above a year ago.

“Another month of modest increases in contract activity is evidence that the housing market has a small trace of momentum at the start of 2018,” Lawrence Yun, NAR chief economist said. “Jobs are plentiful, wages are finally climbing and the prospect of higher mortgage rates are perhaps encouraging more aspiring buyers to begin their search now.”

While a lack of demand from tight inventories are still expected to fuel upward price pressure in most areas this year, Mr. Yun expects overall price growth to shrink and some states to even see a decline as a result of tax reform. He cited changes to the mortgage interest deduction and state and local deductions under the new tax law.

“In the short term, the larger paychecks most households will see from the tax cuts may give prospective buyers the ability to save for a larger down payment this year, and the healthy labor economy and job market will continue to boost demand,” Mr. Yun added. “However, there’s no doubt the nation’s most expensive markets with high property taxes are going to be adversely impacted by the tax law.”

Still, pending home sales expanded by 1.1% in 2017 to 5.51 million and Mr. Yun does anticipate a slight increase (0.5%) in existing sales this year (5.54 million). Single-family housing starts are forecast to surge 13.3% to 961,000, which will push new home sales up 15.3% to 701,000 (608,000 in 2016).

The PHSI in the Northeast fell 5.1% to 93.9 in December and is now 2.7% below a year ago. In the Midwest, the index declined slightly by 0.3% to 105.0 in December. However, it is still 0.3% higher than December 2016.

Pending home sales in the South grew 2.6% to an index of 126.9 in December and are now 4.0% higher than last December. The index in the West rose 1.5% in December to 101.7, but is still 3.1% below a year ago.