HousingWireHousingWire
Despite rising mortgage rates through much of 2024, recent indications show growing boldness among homebuyers heading into the new year. A report released Monday by the National Association of Realtors (NAR) showed an increase in pending home sales for the fourth consecutive month.
NAR’s Pending Homes Sales Index (PHSI) report is a forward-looking source that predicts home sales based on contract signings. The report found that pending home sales jumped 2.2% month over month and 6.9% year over year in November.
November’s reading of 79.0 is the highest level for the PHSI since February 2023, according to NAR. By comparison, October’s index reading was 77.4, up 5.4% year over year. The index is benchmarked to 100 in 2001 and is moving closer to what could be regarded as normal levels of home sales activity. These increases are persisting despite mortgage rates near 7%.
“Despite higher mortgage rates in November and persistent affordability challengers, buyers took advantage of more inventory as pending home sales reached the highest level in nearly two years. On a regional basis, pending home sales increased month over month in the South, West and Midwest, but declined in the Northeast,” Odeta Kushi, deputy chief economist for First American, said in a statement.
According to HousingWire‘s Mortgage Rates Center, current rates for 15-year and 30-year conforming loan types are hovering slightly above 7%.
The South led the way with a PHSI reading of 94.5 in November — up 5.2% from the prior month and up 8.5% compared to November 2023. In the West, the PHSI grew 0.5% month over month and 11% year over year to a reading of 64.3.
In the Midwest, the index reading of 78.1 was up 0.4% monthly and 1.6% annually. The Northeast was the lone outlier, down 1.3% from October, but its reading of 67.8 was still up 5.6% year over year.
“We find the strongest supply surges in Southern and Western markets, but more muted improvements in the Northeast and Midwest,” Kushi added. “Where supply surges, improving affordability often follows, which may bring buyers off the sidelines, unlocking pent up demand and reinvigorating market activity in the new year.”
Housing industry experts attribute the recent increases in pending home sales to a shift in buyer attitudes about mortgage rates. Buyers appear to be done waiting for rates to fall, prompting them to enter the market to take advantage of higher inventory levels.
“Consumers appeared to have recalibrated expectations regarding mortgage rates and are taking advantage of more available inventory,” NAR chief economist Lawrence Yun said in a statement. “Mortgage rates have averaged above 6% for the past 24 months. Buyers are no longer waiting for or expecting mortgage rates to fall substantially.”
In a statement, Bright MLS chief economist Lisa Sturtevant forecasted a jump in sales activity in early 2025.
“Although some prospective home buyers are fatigued by higher rates and still-limited inventory, growing pent-up demand in the market will likely be unleashed during the first quarter of 2025 as rates begin to fall and inventory increases,” Sturtevant said.
But Sturtevant also highlighted economic turmoil as a risk due to potentially higher inflation rates and labor market issues. “Economic uncertainty does put at risk a strong first quarter housing market. If inflation continues to rise, or if the labor market softens, optimism for a rebounding 2025 housing market could be short-lived,” she said.
Housing market activity ramped up in November and December. NAR data showed a 6.1% year-over-year increase in the annualized rate of existing-home sales, the largest year-over-year gain since June 2021. Meanwhile, new-home sales for November delivered even more optimism as the annualized rate jumped by 8.7%, according to data from the U.S. Census Bureau.
But even after the most recent Federal Reserve rate cut on Dec. 18, some prognosticators believe that mortgage rates are unlikely to fall in the early portion of 2025. NAR still predicts that mortgage rates will stabilize around 6% and that existing-home sales will rise to 4.5 million in 2025.
