Housing Market Shows Signs of Life as Pending Home Sales Rise for First Time in 14 Months

A "For Rent, For Sale" sign is seen outside of a home in Washington, on July 7, 2022. Sarah Silbiger/Reuters

The U.S. housing market showed a sign of early recovery, as pending home sales of rose for the first time in 14 months.

Pending home sales rose 2.9 percent in December, the first month-over-month increase since October 2021, according to data from Redfin on Jan. 25.

The decline in pending sales also eased for the first time in 10 months, to 30.9 percent from a record 35.1 percent drop in November.

“The small uptick in pending sales suggests some homebuyers returned to the market at the tail end of 2022 after demand plummeted in the fall,” said Chen Zhao, Redfin’s economics research lead.

“That’s mostly because slowing inflation has driven mortgage rates down to about 6 percent from a peak of over 7 percent, giving buyers some relief and sending the typical buyer’s payment down nearly $200. Along with the dollar decline in monthly payments, rates traveling down instead of up are helping some sidelined buyers get back into a house-hunting mindset.”

Home Sales Saw Slight Improvement in December

Redfin saw other indications that demand improved from November, including an increase in bidding wars, more requests for home tours, and a jump in potential clients requesting to start the home buying process.

“I’ve seen more homes go under contract this month than in the entire fourth quarter,” said San Jose, Calif., Redfin agent Angela Langone.

“Listings that were stagnant in November and December are suddenly getting one to two offers.”

However, closed home sales last month were still 33 percent lower from a year earlier, but less than the record drop 35 percent seen in November.

Meanwhile, a new Jan. 26th report from the U.S. Census Bureau showed home sales increasing 2.3 percent to a seasonally adjusted annual rate of 616,000 units in December, a decent improvement from the revised sales pace of 602,000 units from the previous month.

Sales rose in the Midwest and South, which are generally considered affordable regions, but fell in the Northeast and West, reported Reuters.

Housing Market Still Down Due to Rise in Mortgage Rates

The housing market took a downturn last year after the pandemic home-buying boom ending, as the interest rate-sensitive sector took a beating from the Federal Reserve’s attempts to tighten borrowing policy and slow the economy.

Fed policymakers raised the benchmark rate seven consecutive times last year and have indicated they will continue to raise rates this year as they try to crush historically high inflation.

The average rate for a 30-year fixed mortgage dropped to 6.15 percent this week, after it hit a record high of 7.08 percent in November, according to data from mortgage lender Freddie Mac.

The typical homebuyer’s mortgage payment has dropped on average about 10 percent, or roughly $180, since the fall.

Levels remain significantly higher the same time a year ago, when rates hovered around 3.56 percent.

The slight drop has allowed demand to show early signs of improvement as 2023 begins, as mortgage applications rose 28 percent from early November, according to Redfin.

Despite the higher interest rates, home prices have continued to surge over the past year, putting homeownership out of reach for millions of Americans.

The median price of an existing home sold in December was $372,700, or a 2 percent rise over the same month in 2021, according to the National Association of Realtors.

Redfin warned that the recent gains in the housing market may be temporary, as the sector may face future pressure from a potential slowdown in the economy, an inventory shortage, or a rise in prices that affects homebuyers.

Reuters contributed to this report.