After a historic run for the housing market for the latter part of 2020 and throughout 2021, we have seen a significant slowdown as of early 2022. Of course, with inflation hitting a 40-year high in early 2022, The Federal Reserve has intentionally risen rates thus impacting mortgage rates and the housing market. As a result, we have seen home sales plummet during 2022. A key indicator for the housing market is the number of pending sales. Essentially, this is a forward looking indicator based on the number of contract signings. Interestingly, pending home sales increased for the month of December 2022. This marked the first month-over-month increase that we have seen since May 2022.
Pending home sales breakdown
The Pending Home Sales Index (PHSI) is a forward-looking indicator of home sales based on contract signings. This indicator rose 2.5% to a level of 76.9 in December 2022. For perspective, an index of 100 is equal to the level of contract activity seen in 2001.
Interestingly, month-over-month contract signings fell in the Northeast and Midwest, but rose in the South and the West:
- Northeast Region: The Pending Home Sales Index (PHSI) dropped 6.5% from last month to 64.7, This equated to a decrease of 32.5% from December 2021.
- Midwest Region: The Pending Home Sales Index (PHSI) dropped 0.3% to 77.6 in December. This equated to a decline of 30.1% from one year ago.
- South Region: The Pending Home Sales Index (PHSI) rose 6.1% to 94.1 in December. Compared to the year prior, this was a drop of 34.5%.
- West Region: The Pending Home Sales Index (PHSI) rose 6.4% to 58.6 in December. This was a 37.5% decrease from the year prior.
Pending sales are an important indicator for the overall housing market. A sale is listed as pending when the contract has been signed but the transaction has not closed. Typically, these transactions will close within one to two months. According to Lawrence Yun, Chief Economist, National Association of REALTORS®, although higher mortgage rates slowed down the housing market, he expects a rebound to occur. Typically, there is about a one to two month lag between mortgage rates and home sales. Since mortgage rates dropped slightly throughout December, home buying activity should increase in the coming months.
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