February pending home sales disappoint, but maybe we’re turning a corner?

February pending home sales disappoint, but maybe we're turning a corner?

Don’t call it a comeback? Pending home sales rose for the third month in a row in February, but at 0.8%, the uptick over January was less than is typically seen in the run-up to the spring housing market.

Month-over-month, contract signings increased in three U.S. regions, but declined in the West, according to the National Association of Realtors. Pending home sales decreased in all four regions compared to one year ago.

Overall, contract signings were down 21.1% from February 2022.

“Homebuyers have been closely watching mortgage rates, which have been volatile during the first few months of the year,” said Lisa Sturtevant, chief economist for Bright MLS. “Even though rates ticked up in February, some buyers took the plunge anyway, anxious that mortgage rates would be moving even higher this spring.”

Although inventory has increased from February of last year, the number of homes available for sale is just half of what it was three years ago. To boot, mortgage rates declined in January but rose again in February, closing out the month in the 7% range.

Pending home sales are likely to increase in March given the increase in mortgage applications and decrease in mortgage rates, owing in large part to the bank runs that jarred financial markets for much of the month.

There’s plenty of reason for optimism, said Lawrence Yun, the NAR’s chief economist.

“After nearly a year, the housing sector’s contraction is coming to an end,” he said in a statement Wednesday. “Existing-home sales, pending contracts and new-home construction pending contracts have turned the corner and climbed for the past three months.”

The number of pending homes in the Northeast rose 6.5% from the prior month, though in-contract deals were still down 17% from February 2022. Pending home sales rose 0.4% in the Midwest from January, which was a 16.5% decline from a year ago. In-contract deals rose 0.7% in the South from January to February, but were still down 21.7% from February 2022.

Pending sales in the West – where home values are falling, but not enough to offset high costs of financing – declined 2.4% in February, a 28.4% drop from a year ago.

“The affordable U.S. regions – the Midwest and South – are leading the recovery,” Yun said.

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