The number of existing homes in the U.S. that went under contract in January increased from the previous month, signaling a positive outlook for the start of the 2019 housing market.
According to data from the National Association of Realtors (NAR), pending home sales–a gauge of purchases before they close–rose 4.6% to a seasonally adjusted reading of 103.2 in January. This is a much more significant gain than economists from the Wall Street Journal anticipated, according to Realtor.com. Those economists predicted a 0.8% increase in January.
While the index shows a strong improvement in pending home sales from December 2018 to January 2019, the numbers continue to reflect a persistent concern year-over-year. According to the data, January’s pending home sales are still below last year’s figure. January 2019’s reading was down 2.3% from a year ago. This could be a reflection of growing affordability concerns, lack of available inventory or a combination of the two. It should also be noted that December’s reading has been revised slightly lower, to 98.7 from an initial reading of 99, helping boost January’s gain, albeit very slightly.
So what helped spur the month-to-month increase? According to some industry leaders, changes in policy and the end of the government shutdown contributed to the growth in the market.
“A change in Federal Reserve policy and the reopening of the government were very beneficial to the market,” said Lawrence Yun, chief economist for NAR.
He added that rising incomes, a strong labor market and mortgage rates remaining steady will likely help January’s trend continue. Nevertheless, NAR reported that final sales of existing homes, an index the trade group watches more cautiously, dropped in January.
According to NAR, sales slipped 1.2% in January from the prior month to a seasonally adjusted annual rate of 4.94 million. This came in well below the economists’ forecast of a 5.02 million increase. Meanwhile, December’s existing-home sales index was revised higher to 5.02 million.
This just goes to show, even the most experienced market analysts and highly skilled economists can be incorrect in their predictions.
The existing-home sales index measures the completed transactions for home sales, in other words, actual sales that actually went through to closing. Not surprisingly, this index provides a more concrete measure of activity within the U.S. housing market. Pending sales on the other hand, offer those in the industry a forecast of activity to come. But as the data shows, a lot can happen to a home sale between the offer and closing.
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