WASHINGTON -- Fewer Americans signed contracts to buy homes in December, a sign that low mortgage rates have yet to coax more buyers into the market.
The National Association of Realtors said Thursday that its seasonally adjusted pending home sales index fell 3.7 percent last month to 100.7. The index ended the year below its 2013 average. But the Realtors project sales of previously owned homes will rebound in 2015 to 5.26 million, a 6.6 percent increase from last year.
"Total inventory fell in December for the first time in 16 months, resulting in fewer choices for buyers and a modest uptick in price growth," Lawrence Yun, chief economist for the Realtors association, said in a statement. "More jobs, increasing consumer confidence, less expensive mortgage insurance and new low down- payment programs coming into the marketplace will likely lead to more demand from first-time buyers."
Pending sales are a barometer of future purchases. A one- to two-month lag usually exists between a contract and a completed sale.
Jim O'Sullivan, chief U.S. economist at High Frequency Economics, said there may have been some volatility because of the seasonal adjustments applied to a winter month when sales normally slow.
"[T]he trend in home sales is probably still up," O'Sullivan said, noting that more people identified "now" as a good time to buy a house in a University of Michigan consumer sentiment survey.
Lackluster wage growth and rising home prices stifled buying for much of 2014. This caused the share of Americans who own homes to dip to 64 percent at the end of last year, down from 65.2 percent a year ago, the Census Bureau reported Thursday.
Still, the affordability pressures should ease in 2015 because of strong job gains in recent months coupled with falling mortgage rates.
Rates for 30-year mortgages averaged 3.66 percent this week, down from 4.32 percent a year ago, according to the mortgage firm Federal Home Loan Mortgage Corp., or Freddie Mac. The drop has made it less expensive for buyers to borrow, enabling them to either save on monthly payments or afford larger and more expensive homes.
Strong job growth over the past year should help contribute to income gains and real estate sales.
The unemployment rate has fallen to 5.6 percent from 6.7 percent a year ago, as employers added nearly 3 million jobs last year, according to the Labor Department. While average wages have basically kept pace with inflation, the job growth has increased the number of Americans with paychecks -- which may spur more home sales this year, economists said.
Construction firms still expect growth this year, although their enthusiasm has waned slightly. The National Association of Home Builders/Wells Fargo builder sentiment index fell slightly this month to 57, one 1 point from a revised reading of 58 in December. Despite the decrease, any reading above 50 indicates that more builders view sales conditions as good rather than poor.
Information for this article was contributed by Shobhana Chandra of Bloomberg News.
Business on 01/30/2015