Elevated mortgage rates and affordability challenges push pending transactions down 4.6%
Pending home sales in January came in much lower than expected, according to the latest data from the National Association of Realtors (NAR).
The Pending Home Sales Index (PHSI) dropped 4.6% to 70.6, marking an all-time low. On a year-over-year basis, contract signings declined by 5.2%.
The decline was widespread, with the Midwest, South, and West experiencing month-over-month losses. The South saw the steepest drop, while the Northeast was the only region to record a modest gain. Compared to January 2024, all four regions reported a decline in pending sales, with the South again leading the fall.
“It is unclear if the coldest January in 25 years contributed to fewer buyers in the market, and if so, expect greater sales activity in upcoming months,” NAR chief economist Lawrence Yun said in the report. “However, it’s evident that elevated home prices and higher mortgage rates strained affordability.”
Housing affordability remained a major hurdle in January, as mortgage rates ranged from 6.91% to 7.04%. The monthly mortgage payment on a $300,000 home increased by $50 from a year ago, reaching $1,590.
“The affordability environment is challenging, but inventory is rising in parts of the country,” said First American deputy chief economist Odeta Kushi. “In markets where homes are sitting on the market for longer, we may expect price cuts to make those homes more attractive to potential buyers.”
New home sales mirrored the weakness in the broader market, falling to a three-month low in January. Purchases of new single-family homes declined by 10.5% to an annualised rate of 657,000, missing economists’ expectations of 680,000, according to government data released Wednesday.
“Even a slight reduction in mortgage rates will likely ignite buyer interest, given rising incomes, increased jobs and more inventory choices,” said Yun.
Regional breakdown
- Northeast: The PHSI inched up 0.3% to 63.4 but remained 0.5% lower than a year ago.
- Midwest: Contract signings slipped 2.0% to 72.8, down 2.7% year-over-year.
- South: The region saw the sharpest drop, plunging 9.2% to 81.0, an 8.8% annual decline.
- West: Pending sales fell 1.2% from December to 57.6, down 4.5% from January 2024.
“Heading into the spring season, we’re likely to see a modest, seasonal increase in home-buying demand,” Kushi said. “However, it will still be constrained by affordability issues and the persistence of the rate lock-in effect compared to pre-pandemic spring markets.”
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The pending home sales index reflects contract signings that typically translate into closed sales within one to two months. However, the process from contract to closing can be delayed due to factors such as financing challenges, home inspections, or appraisal issues.
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