Pending Home Sales Decline 4.9% in December, Gain 4.6% Year-Over-Year

Pending Home Sales Index (PHSI) Prior Revised Higher for November

The Pending Home Sales Index (PHSI) fell 4.9% to 103.2 in December, though year-over-year contract signings rose 4.6%. The PSHI for November was revised higher nationally and for 3 of 4 regions.

While all four regions saw declines in month-over-month contract activity, with the South posting the steepest fall, year-over-year pending home sales were up nationally compared to one year ago.

An index of 100 is equal to the level of contract activity in 2001. Forecasts for pending home sales (PHSI) ranged from a low of 0.0% to a high of 1.0%. The consensus forecast was 0.4%.

“Mortgage rates are expected to hold under 4% for most of 2020, while net job creation will likely exceed two million,” said Lawrence Yun, NAR’s chief economist.

While overall indicators are positive for the housing market, Mr. Yun expressed continued concern over low inventory. It remains a significant longer-term concern.

“Due to the shortage of affordable homes, home sales growth will only rise by around 3%,” he predicted. “Still, national median home price growth is in no danger of falling due to inventory shortages and will rise by 4%.”

“The new home construction market also looks brighter, with housing starts and new home sales set to rise 6% and 10%, respectively.”

In August, housing starts and building permits crushed the forecast for the new residential construction report. The fall maintained strength in what is a typically volatile report.

Housing starts and building permits came in much stronger than forecasts expected in October. In November, housing starts and building permits came in higher by 3.2% and 1.4%, respectively, both beating forecasts.

“The state of housing in 2020 will depend on whether home builders bring more affordable homes to the market,” Mr. Yun added. “Home prices and even rents are increasing too rapidly, and more inventory would help correct the problem and slow price gains.”

The PHSI in the Northeast fell 4.0% to 92.4 in December and is now 0.1% lower than a year ago. In the Midwest, the index fell 3.6% to 98.8, but is still 1.3% higher than in December 2018.

Pending home sales in the South were down 5.5% to an index reading of 118.1, which is still 7.4% higher than December 2018. The index in the West declined 5.4% to 93.1, an increase of 7.0% from a year ago.