Pending home sales in January paint a positive and negative picture for the housing market. On one hand, the pending home sales figure is down 24.1% on the year, according to the National Association of Realtors. On the other hand, the pending home sales figure in January is up 8.1% from December, rising for the second consecutive month. That result blew away the forecast of 1% for the month.
The pending home sales data follows Friday’s release of new home sales, which was up 7.2% in January, according to the Census Bureau.
The NAR said buyers are responding to better affordability and falling mortgage rates in December and January. Those rates are already back on the rise, reaching 6.5% for a 30-year fixed rate mortgage, according to the latest data from Freddie Mac. A third factor could be boosting new home sales.
“We’ve seen demand creep back up a little bit but it’s still not at the levels we saw in 2020 and 2021,” Insider housing economy reporter Alcynna Lloyd told Straight Arrow News. “So what individual builders are doing right now, I’ve seen some builders offer more incentives.”
The main incentive is buying down mortgage rates. It’s always been a tool in the home builder’s belt but really wasn’t needed with rates so low for so long. Now, with the 30-year rate within the 6-7% range, homebuilders are luring in buyers by buying down mortgage rates one to two percentage points lower.
A recent John Burns Real Estate Consulting national survey revealed 75% of home builders surveyed confirmed they are buying down buyers’ mortgage rates to make payments more affordable. The surveys said 32% are buying down the full 30-year term, while 30% are reducing the rate the first two years. Buyers must still qualify to make monthly payments on the higher rate before it’s brought down.
This process can cost the home builder 2-6% of the sales price, but with a construction loan looming, it’s a powerful way to move inventory with lower demand. It’s also giving new home sellers a competitive advantage, with few resale sellers offering the same kind of deal, the consulting firm said.
The NAR still expects annual existing home sales to drop 11.1% in 2023 before jumping 17.7% in 2024. New homes have a much rosier picture, facing a projected 3.7% annual drop in 2023 and a 19.4% rise in 2024.
