February 27, 2017 10:20 AM, EST

Pending Purchases of Existing Homes Unexpectedly Decline

Andrew Harrer/Bloomberg News

Contracts to buy previously owned U.S. homes unexpectedly declined in January as higher mortgage rates, elevated prices and a limited number of listings pushed the index to a one-year low, according to figures released Feb. 27 from the National Association of Realtors in Washington.

Key Points

• Pending home sales gauge dropped 2.8% (forecast was for 0.6% advance), the most since May, to a one-year low of 106.4.

• Contract signings rose 0.8% in December, revised down from a previously reported 1.6% gain.

• Index increased 2.7% from January 2016 on an unadjusted basis.

• Pending sales decreased in the Midwest and West.

Big Picture

Pending home sales, which reflect contract signings, declined in January as affordability became an issue for potential buyers. A pickup in mortgage rates since the November election, higher home prices and fewer properties to choose from are limiting progress in residential real estate. At the same time, steadily increasing wages and a growing economy remain sources of support.

Economist Takeaways

“The significant shortage of listings last month along with deteriorating affordability as the result of higher home prices and mortgage rates kept many would-be buyers at bay,” Lawrence Yun, NAR’s chief economist, said in a statement. “Last month’s retreat in contract signings indicates that activity will likely be choppy in coming months as buyers compete for the meager number of listings in their price range.”

Other Details

• A gauge of contract signings in the West slumped 9.8% to the lowest level since June 2014; the index of Midwest purchases dropped 5% to the weakest since April 2014.

• NAR economist Yun projects 5.57 million sales of previously owned homes this year, an increase of 2.2%.