The traditional offseason for home sales was evidently exacerbated by extreme cold weather in December, when real estate contracts slowed significantly.
According to the National Association of Realtors' most recent Pending Home Sales Index, the final month of 2013 saw an 8.7 percent decline in pending home sales from November, with the index score for the month registering at 92.4. That score represents a substantial drop-off from the 101.2 revealed by the index the previous month, as well as an 8.8 percent decline from the index reading of 101.3 in December 2012.
Pending home sales aim to gauge the market looking forward, as they account for real estate contracts signed as opposed to just those that have been closed, HousingWire reported.
Old Man Winter hates home sales
Based on NAR data, it was the slowest month for the still-recovering housing market since October 2011, when the index score posted a reading of 92.2. While it's natural for homebuying activity to be steady during the warmer months, when showings are made easier and families are looking to consummate a deal in advance of the school year, most analysts are attributing the extent of the slowdown to a rash of sub-zero temperatures and staggered snowstorms that swept across both the Midwest and Northeast during December and into January.
As a result, the data is not cause for as much concern as it might be under normal weather conditions.
"Unusually disruptive weather across large stretches of the country in December forced people indoors and prevented some buyers from looking at homes or making offers," said Lawrence Yun, chief economist for NAR. "Home prices rising faster than income is also giving pause to some potential buyers, while at the same time a lack of inventory means insufficient choice. Although it could take several months for us to get a clearer read on market momentum, job growth and pent-up demand are positive factors."
Across all four of the countries regions, as determined by NAR, contract signings were down in December. The Northeast experienced the most precipitous month-to-month decline, registering an index score of 74.1 – down 10.3 percent from November and 5.5 percent on an annual basis. The West's index fell 9.8 percent from November to December and 16 percent from a year earlier, but that movement can't necessarily be attributed to inclement weather. Instead, it could be that rapid rates of price appreciation are catching up to markets like the Bay Area, Las Vegas, Los Angeles, Phoenix and San Diego, where affordability remains an issue and inventory levels are still relatively low.
The Midwest region actually experienced the least serious month-to-month reduction in activity, finishing with an index score of 93.6, which represented a 6.9 percent fall from December 2012 and a 6.8 percent dip from November. In the South, which has not been immune to the unusually cold weather this winter, the index dropped 8.8 percent from November to a December reading of 104.9 – a 6.9 percent slip from a year earlier.
Promise not diminished
Despite the disappointing December readings, NAR data suggests that total existing homes sales for the year will close at 5.1 million. And while inventory is still limited in many places, such as the aforementioned metro markets that have experienced significant appreciation, the group stated that it anticipates the national median existing-home price to continue its rise with a 5.4 percent jump over the course of 2014.
Analysts have maintained throughout 2013 and into 2014 that the worst of the housing downturn is behind us. In the release accompanying November's pending home sales data, Yun acknowledged that despite the probability of finishing the year with a whimper, the market would remain on pace for its best figures in seven years in terms of contracts signed and homes purchased.
"We may have reached a cyclical low because the positive fundamentals of job creation and household formation are likely to foster a fairly stable level of contract activity in 2014," he said. "Although the final months of 2013 are finishing on a soft note, the year as a whole will end with the best sales total in seven years."
Looking forward, continued jobs creation remains an important facilitating factor in the market's ongoing success. Likewise, the rate at which new construction permits is expected to increase throughout 2014, thereby creating more jobs and helping provide the injection of new inventory so desperately needed in many markets. Some concerns about the prices of building materials persists, and there are still whispers that the continued emphasis on regulatory mandates is stunting the housing market's growth, but the consensus is that the industry is finally in a position to sustain itself over the long haul.
Whether the sales figures for January and February reflect the promise remains to be seen, but it appears that buying homes is something more Americans are capable of doing again.