US pending home sales slump in January

The NAR’s monthly index came in at 104.6, down 4.7% from a downwardly-revised 109.8 in December. Economists had been expecting a 0.5% increase.

The index is now 3.8% below a year ago and at its lowest level since October 2014, when it was 104.1.

NAR chief economist Lawrence Yun said pending sales took a noticeable step back to start 2018.

"The economy is in great shape, most local job markets are very strong and incomes are slowly rising, but there’s little doubt last month’s retreat in contract signings occurred because of woefully low supply levels and the sudden increase in mortgage rates.

"The lower end of the market continues to feel the brunt of these supply and affordability impediments. With the cost of buying a home getting more expensive and not enough inventory, some prospective buyers are either waiting until listings increase come spring or now having to delay their search entirely to save up for a larger down payment."

The pending home sales index in the Northeast was down 9% to 87 in January and is now 12.1% below a year ago, while the index in the Midwest fell 6.6% to 98.2 and now sits 4.1% lower than January last year.

Pending home sales in the South declined 3.9% to 121.9 in January and are now 1.1% lower than last January, while the index in the West decreased 1.2% to 97.9 and is 2.5% lower than a year ago.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said: "This looks grim, but it is consistent with the new home sales numbers, which also dropped sharply; the data for both are collected at the point contracts are signed. It's possible that rising mortgage rates explain the decline, but it seems very sudden, given that mortgage applications usually lag movements in rates by about three months.

"It's more likely, in our view, that the severe weather across large parts of the country in the first week of the month did the damage If we're right, both pending sales and new home sales will rebound in February."