US pending home sales unexpectedly fall by most in 11 months

[CHICAGO] A gauge of US pending home sales unexpectedly fell in January for a third month as high prices and low inventory continued to restrict home buying.

The National Association of Realtors' (NAR) index of pending home sales decreased 5.7 per cent from a month earlier to 109.5, the biggest drop since February 2021, according to data released on Feb 25. The figure was worse than all estimates in a Bloomberg survey of economists.

The figures suggest that homebuyers are still struggling to get into a housing market marked by record prices and lean inventory. It'll only get less affordable as mortgage rates rise ahead of expected interest rate hikes by the Federal Reserve.

"Given the situation in the market - mortgages, home costs and inventory - it would not be surprising to see a retreat in housing demand," Lawrence Yun, NAR's chief economist, said in a statement.

Contract signings dropped in 3 of the 4 regions from the prior month, led by a 12.1 per cent plunge in the north-east. The west posted the only gain.

Compared with a year earlier, contract signings were down 9.5 per cent on an adjusted basis, and declined by 9.1 per cent on an unadjusted basis.

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A separate report last week showed that sales of previously owned US homes surged to a 1-year high in January. The pending home-sales data are often seen as a leading indicator of existing home sales given they typically go under contract a month or 2 before they're sold.

Unlike existing home sales, which are calculated when a contract closes, the index of pending home sales is based on contract signings.

Earlier data on Friday showed inflation-adjusted consumer spending and orders placed with US factories both advanced by more than expected in January. BLOOMBERG