Pending home sales posted a slight drop in February, but economists are shrugging off any concerns that it could be a sign of any murky spring for the housing market.
The National Association of REALTORS®’ Pending Home Sales Index, a forward-looking indicator based on contract signings, fell 1 percent in February to a reading of 101.9. Contract signings are down 4.9 percent year over year.
“In January, pending contracts were up close to 5 percent, so this month’s 1 percent drop is not a significant concern,” says Lawrence Yun, NAR’s chief economist. “As a whole, these numbers indicate that a cyclical low in sales is in the past, but activity is not matching the frenzied pace of last spring.”
However, inventories are increasing across the country, which should bode well for buyers searching for a home this spring. Realtor.com® data shows the largest increase in year-over-year active listings in February compared to a year ago were in Denver-Aurora-Lakewood, Colo., Seattle-Tacoma-Bellevue, Wash., San Diego-Carlsbad, Calif., Portland-Vancouver-Hillsboro, Ore.-Wash., and Nashville-Davidson-Murfreesboro-Franklin, Tenn.
Yun also believes mortgage rates will remain low, which could also be a perk for home shoppers. He does not anticipate the Federal Reserve will raise its key rate in 2019, which doesn’t directly impact mortgage rates but often influences them.
“If there is a change at all, I would say the Fed will lower interest rates in 2019 or 2020,” Yun says. “That would stimulate the economy and the housing market. But the expectation is no change at all in the current monetary policy, which will help mortgage rates stay at attractive levels.”
Freddie Mac reported last week that the 30-year fixed-rate mortgages averaged 4.28 percent, down from 4.45 percent a year earlier.
Regionally, sales contracts in February were up 1.7 percent in the South and up by 0.5 percent in the West, according to NAR’s index. Despite a slight increase in pending home sales in the West, sales contracts are still well below activity from a year ago (down 9.6 percent from last year).
“There is a lack of inventory in the West and prices have risen too fast,” Yun says. “Job creation in the West is solid, but there is still a desperate need for more home construction.”
Sales contracts in February fell 0.8 percent in the Northeast and were down by 7.2 percent in the Midwest.
