WASHINGTON (AP) — Americans pulled back substantially on signing contracts to buy homes in December, a possible sign of mounting affordability challenges as prices are rising faster than incomes.
The National Association of Realtors said Wednesday that its pending home sales index, which measures the numbers of purchase contracts signed, plunged 4.9% last month to 103.2. Still, lower mortgage rates mean that contract signings were up 4.6% from December 2018.
The average rate on a 30-year mortgage was 3.65% last week, down from 4.45% a year ago, according to mortgage buyer Freddie Mac. Cheaper borrowing costs helped boost demand for housing last year, but it also led to higher prices by the end of 2019 that could weigh on affordability going forward.
All regional indices were down in December. The Northeast PHSI slipped 4.0% to 92.4 in December, 0.1% lower than a year ago. In the Midwest, the index dropped 3.6% to 98.8 last month, 1.3% higher than in December 2018.
Pending home sales in the South decreased 5.5% to an index of 118.1 in December, a 7.4% increase from December 2018. The index in the West fell 5.4% in December 2019 to 93.1, an increase of 7.0% from a year ago.
“Mortgage rates are expected to hold under 4% for most of 2020, while net job creation will likely exceed two million,” said Lawrence Yun, NAR’s chief economist. While he noted that these factors are promising for the housing market, Yun cautioned that low inventory remains a significant longer-term concern.
“Due to the shortage of affordable homes, home sales growth will only rise by around 3%,” Yun said. “Still, national median home price growth is in no danger of falling due to inventory shortages and will rise by 4%. The new home construction market also looks brighter, with housing starts and new home sales set to rise 6% and 10%, respectively.”
Pointing to data from active listings at realtor.com®, Yun says the markets where listing prices are around $250,000 – an affordable price point in most markets nationally – are drawing some of the most significant buyer attention, including Fort Wayne, Ind., Burlington, N.C., Topeka, Kan., Pueblo, Colo., and Columbus, Ohio.
“The state of housing in 2020 will depend on whether home builders bring more affordable homes to the market,” Yun said. “Home prices and even rents are increasing too rapidly, and more inventory would help correct the problem and slow price gains.” – additional reporting by FWBP Staff