US pending home sales bounce back strongly in January

US pending home sales bounced back much more strongly than expected in January after hitting a near five-year low the previous month, according to data from the National Association of Realtors.

The NAR’s monthly index came in at 103.2 last month, up 4.6% from December’s reading of 98.7 and beating expectations for a 0.4% increase.

However, year-over-year contract signings fell 2.3%, marking the thirteenth straight month of annual decreases.

NAR chief economist Lawrence Yun said a change in Federal Reserve policy and the reopening of the government were very beneficial to the market. He also said higher rates discouraged many would-be buyers in 2018.

"Homebuyers are now returning and taking advantage of lower interest rates, while a boost in inventory is also providing more choices for consumers," said Yun.

The pending home sales index in the Northeast rose 1.6% to 94.0 in January, while the index for the Midwest was 2.8% higher at 100.2.

Pending home sales in the South jumped 8.9% to an index of 119.8 last month and the index for the West was up 0.3% to 87.3.

Ian Shepherdson, chief economist at Pantheon Macroeconomics said: "This is the biggest one-month increase since October 2010, but it reverses only a bit less than half the drop over the previous year. Pending and existing home sales have hugely underperformed relative to mortgage applications, while new home sales have moved in line. The disparity probably is a consequence of the restrictions on state and local tax deductions, effective January last year, which have disproportionately hurt the existing homes market in high tax states.

"We have argued recently that existing home sales would soon have to hit bottom, and this report tentatively suggests that the worst now is over; the 50bp drop in mortgage rates since late last summer is helping. February existing home sales should now rebound handily and with new home sales likely to head higher too, given the rising trend in mortgage demand, the gloomy housing narrative in markets and the media is set to change quite dramatically over the next few months. The market is not rolling over, and it is not a harbinger of recession in the broader economy."