What the January pending home sales data shows
Pending home sales fell 4.6% in January in response to the near-7% mortgage rates. On an annual basis, contract signings were down 5.2% compared with last January. Still-high home prices and elevated mortgage rates continue to price would-be buyers out of the housing market.
Housing affordability has not improved considerably in years as still-limited home supply keeps prices elevated and stubborn inflation applies upward pressure on interest rates. More for-sale inventory has the potential to generate more contract signings, but climbing home supply is not evenly distributed across the U.S. Moreover, many areas with high demand see relatively low for-sale inventory, which limits progress toward more home sales.
New-home sales, which are also based on contract signings, fell sharply in January, dropping 10.5% month over month and 1.1% year over year. Affordable new construction has offered some relief to buyers recently, but the January data shows a pivot with falling sales and climbing prices.
Market activity continues to vary regionally, but all four regions saw a dip in contract signings annually, and all but the Northeast saw a monthly dip as well. The South led the regions with a 9.2% monthly decline, followed by the Midwest (-2%) and the West (-1.2%), while the Northeast saw a 0.3% pickup. On an annual basis, the South (-8.8%) saw the biggest dip, followed by the West (-4.5%), the Midwest (-2.7%), and the Northeast (-0.5%).
What this means for buyers, sellers, and the housing market
Pending home sales, or contract signings, measure the first formal step in the home sale transaction. It’s the point when a buyer and seller have agreed on the price and terms. Pending home sales tend to lead existing-home sales by roughly one to two months and are a good indicator of market conditions. Falling new- and existing-home sales in January suggest that the winter’s chill might persist longer than expected due to still-high housing costs. General economic uncertainty around the Trump administration’s various proposals might also give buyers pause as they wait and see how things shake out.