Pending home sales top forecasts as mortgage rates decline

Contract signings to purchase previously owned homes rose by more than forecast in January, snapping a six-month streak of declines and suggesting lower mortgage rates along with a strong job market are helping stabilize demand.

The index of pending home sales rose 4.6%, after a 2.3% decline the previous month, according to data released Wednesday from the National Association of Realtors in Washington. That compared with the median projection of analysts for an increase of 1%. The gauge was down 3.2% from a year earlier.

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Rows of houses stand in Las Vegas, Nevada, U.S. Photographer: Jacob Kepler/Bloomberg
Jacob Kepler/Bloomberg

The improvement signals buyers are returning to the market to take advantage of borrowing costs that have declined from an eight-year high in November, while the end of the partial government shutdown in late January may be encouraging buyers who were otherwise hesitant.

The data also are in line with a jump in mortgage applications in January, and the Federal Reserve's decision to be patient on interest-rate hikes may help sustain demand. U.S. employers in January also added jobs at the fastest rate in almost a year, supporting demand for major purchases such as homes. Pending-home sales are regarded by economists as a leading indicator because they track contract signings; purchases of existing homes are tabulated when deals close, typically a month or two later.

"A change in Federal Reserve policy and the reopening of the government were very beneficial to the market," NAR Chief Economist Lawrence Yun said in a statement. "Homebuyers are now returning and taking advantage of lower interest rates, while a boost in inventory is also providing more choices for consumers."

Contracts rose from the prior month in all four regions, led by an 8.9% surge in the South and a 2.8% rise in the Midwest. The NAR forecasts 5.28 million homes will be sold in 2019, up from the prior month’s projection of 5.25 million, though down from the 2018 total of 5.34 million.

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