Pending home sales rebounded 5.2% in January as low mortgage rates boost the housing sector

The numbers: The index of pending home sales increased 5.2% in January following a decline the month prior, the National Association of Realtors reported Thursday. This was the second strongest monthly increase in over two years, but came off a significant decline in December.

The index measures real-estate transactions where a contract has been signed but the sale has not closed, benchmarked to contract-signing activity in 2001. It serves as an indicator for existing-home sales reports in the coming months.

What happened: Compared with January 2019, contract signings were up 5.7% nationally.

On a monthly basis, pending sales increased in every region across the country, except the West, where they fell 1.1%. In the South they increased 8.7% month over month, followed by the Midwest (up 7.3%), and the Northeast (up 1.3%).

Big picture: The decline in December was largely the result of depleted supply in the market. The job market and interest rate environment are such that buying a home is a much more affordable prospect for many Americans who had been forced to the sidelines in recent years due to rising home prices.

Now that those people are back in the market, there are far from enough homes to meet this high demand. While that is a boon to new home sales, experts have argued it could keep existing home sales volumes lower for the foreseeable future.

“We are still lacking in inventory,” said Lawrence Yun, chief economist for the National Association of Realtors. “Inventory availability will be the key to consistent future gains.”

What they’re saying: “Low mortgage rates combined with a strong labor market and rising wages are no doubt providing support to the housing sector,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, said in a research note.

Market reaction: The Dow Jones Industrial Average DJIA, -3.33% , the S&P 500 SPX, -3.30%  and the 10-year Treasury yield TMUBMUSD10Y, -6.35% all dropped in Thursday morning trading, amid concerns regarding the spread of the COVID-19 coronavirus.

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