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Pending Home Sales Drop

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There is just not enough homes on the market. That’s the bottom line.

U.S. pending home sales dipped – this time, down 2.85% in January from December, according to a report from the National Association of Realtors. Low mortgage rates and societal shifts due to COVID-19 have collided to form a hot housing market. Unfortunately, buyers are up against the lack of inventory leading to bidding wars and the inability to get into a home. Supply chain constraints and escalating materials costs have made it difficult for homebuilders to help this situation.

“Pending home sales fell in January because there are simply not enough homes to match the demand on the market,” said Lawrence Yun, NAR chief economist. “That said, there has been an increase in permits and requests to build new homes.”

According to the NAR, the South (+0.1%) was the lone region with a gain from the month prior, while the other three major U.S. regions – the Northeast (-7.4%), Midwest (-0.9%), and West (-7.8%) – experienced month-over-month decreases in January. All four areas saw contract transactions increase from a year-over-year standpoint.

Even with this new month-to-month drop, pending home sales were 13% higher in January 2021 than they were in January 2020.

“There will also be a natural seasonal upswing in inventory in spring and summer after few new listings during the winter months,” Yun said. “These trends, along with an anticipated ramp-up in home construction will provide for much-needed supply.”

Yun said he expects a gradual improvement in the economy this year as more Americans receive the COVID-19 vaccine. He cautioned, however, that longer-term interest rates will soon rise due to rising inflationary expectations and higher budget deficits.

Yun still believes that existing-home sales are likely to reach 6.49 million in 2021, which would be a 15% increase over the 5.64 million in 2020.

The vaccine cannot be the sole reason for economic improvement. We are looking to the re-opening of lumber mills in the U.S. and Canada – many of which were closed in early 2020 due to health and safety reasons. With mills reopening, more lumber will be shipped into and across the country, which should boost home sales and compress material costs.

Competition for homes across the country will continue for the next few months. But as we see mortgage rates increase, competition will be elsewhere.