WASHINGTON—Pending home sales dipped during November to their lowest level in nearly a year due largely to the increase in mortgage rates and an insufficient inventory of new homes, according to the National Association of Realtors.
Only the Northeastern U.S. saw monthly and annual pending sales gains during November.
The NAR’s Pending Home Sales Index, which is a forward-looking indicator based on contract signings, declined 2.5% to 107.3 in November from 110.0 in October. After last month's decrease in activity, the index is now 0.4% below last November (107.7) and is at its lowest reading since January (105.4), the NAR said.
Lawrence Yun, the chief economist for the Realtors Group, said in a statement that ongoing supply shortages and the surge in mortgage rates took a small bite out of pending sales in November.
"The budget of many prospective buyers last month was dealt an abrupt hit by the quick ascension of rates immediately after the election,” he said. "Already faced with climbing home prices and minimal listings in the affordable price range, fewer home shoppers in most of the country were successfully able to sign a contract."
Looking to 2017, Yun said higher borrowing costs will likely affect the outlook for the housing market. The NAR’s most recent HOME Survey found that confidence among renters about now being a good time to buy has diminished since the beginning of the year. The silver lining, Yun said, is that the impact of higher rates will be partly neutralized by stronger wage growth as a result of the two-million net new job additions expected next year.
"Healthy local job markets amidst tight supply means many areas will remain competitive with prices on the rise. Those rushing to lock in a rate before they advance even higher will probably have few listings to choose from," said Yun. "Some buyers will have to expand the area of their home search or be forced to delay in order to save a little more money for their down payment."
According to the NAR, existing sales are expected to close out 2016 at a pace of around 5.42 million, which will eclipse 2015 (5.25 million) as the highest since 2006 (6.48 million). In 2017, sales are forecast to grow roughly 2% to around 5.52 million. The national median existing home price is expected to increase to around 5% this year and 4% in 2017.
"Much more robust new home construction is needed to relieve inventory shortages and lessen the affordability pressures present throughout the country," Yun said in a statement.
The NAR said its PHSI showed the Northeastern region of the U.S. increased 0.6% to 97.5 in November, and is now 5.7% above a year ago. In the Midwest the index declined 2.5% to 103.5 in November and is now 2.4% lower than November 2015.
Pending home sales in the South decreased 1.2% to an index of 118.7 in November and are now 1.3% lower than last November. The index in the West fell 6.7% in November to 101.0, and is now 1% below a year ago, the NAR said.