US homebuying activity hits skids in January on lack of supply

A leading indicator of homebuilding activity in the States weakened unexpectedly at the turn of the year, especially in the Midwest and West and almost returning to its levels of a year ago nationwide.

The National Association of Realtors's pending home sales index fell 2.8% month-on-month in January to reach 106.4.

Economists had penciled in an increase of 0.8% over the month. The PHSI was left standing 0.4% higher in comparison to a year ago, up a tad from the 0.3% gain seen in December.

A lack of supply of new homes for sale resulted in less contract actiity in the Midwest and West, NAR said. Dearer home prices and mortgage rates were also factor, according to NAR chief economist Lawrence Yun.

The PHSI for the Northeastern US grew 2.3% on the month to 98.7 in January to stand 3.6% above its year-earlier levels, but the PHSI for the Midwest was down 5.0% for a 3.8% drop on the year.

In the West the PHSI slumped 9.8% to stand 0.4% beneath its year-ago levels.

"Buyer traffic is easily outpacing seller traffic in several metro areas and is why homes are selling at a much faster rate than a year ago. Most notably in the West, it's not uncommon to see a home come off the market within a month," Yun said.

Nevertheless, home buying interest was at its highest since the Great Recession and hoseholds were feeling more confident about their financial situation, job growth was strong in the better part of the country and the stock market had seen record gains over recent months, Yun explained.

"January's accelerated price appreciation 2 is concerning because it's over double the pace of income growth and mortgage rates are up considerably from six months ago," Yun said.

"Especially in the most expensive markets, prospective buyers will feel this squeeze to their budget and will likely have to come up with additional savings or compromise on home size or location," he added.

Looking out over the whole of 2017, Yun forecast existing home sales would run at a pace of approximately 5.57m units, 2.2% ahead on 2016's levels.

Commenting on Monday's data, Blerina Uruci at Barclays said: "We are paying close attention to home sales data for signs that the recent increase in mortgage rates is affecting sales volumes. As discussed in our recent housing outlook note, we expect higher interest rates to be a drag on sales in the near future (US new home sales decline sharply in December; Q4 GDP tracking down to 1.9%). Overall, we continue to expect a modest recovery in the housing market in 2017 and view rising interest rates as a headwind to the sector."