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Pending home sales end year on high note


Pending home sales moved up slightly in December for the third consecutive month, suggesting sales will start the year on a solid footing, the National Association of Realtors (NAR) reported Wednesday.

The trade group cautioned, however, that the higher contract activity for existing homes might not last. The market continues to suffer from a nationwide housing shortage and higher prices, and the impact of the recent tax changes remains a wildcard, the trade group said.

fhacut “Another month of modest increases in contract activity is evidence that the housing market has a small trace of momentum at the start of 2018,” NAR Chief Economist Lawrence Yun said. “Jobs are plentiful, wages are finally climbing and the prospect of higher mortgage rates are perhaps encouraging more aspiring buyers to begin their search now.

“Sadly, these positive indicators may not lead to a stronger sales pace,” Yun added. “Buyers throughout the country continue to be hamstrung by record-low supply levels that are pushing up prices — especially at the lower end of the market.”

NAR’s pending home-sales index rose 0.5 percent to 110.1 in December, up from an upwardly revised 109.6 in November. The index also was 0.5 percent higher than at the end of 2016. The index ended the year at its highest level since March (111.3).

Regionally, pending sales picked up in December in the South and West regions over the November level, but declined in the Northeast and Midwest.

NAR has estimated that 5.51 million existing homes were sold in 2017, up 1.1 percent compared to 2016. It also forecasts sales to increase to 5.54 million in 2018. There are some wildcards, however. One is the impact of tax reform. Under the Republican overhaul, the deduction on mortgage interest was minimized, and the new code also now caps the deduction for state and local taxes, including property taxes, at $10,000. NAR, which was strongly against the GOP tax package prior to its passage, has recently softened it position.

“In the short term, the larger paychecks most households will see from the tax cuts may give prospective buyers the ability to save for a larger downpayment this year, and the healthy labor economy and job market will continue to boost demand,” Yun said. “However, there’s no doubt the nation’s most expensive markets with high property taxes are going to be adversely impacted by the tax law.

“Just how severe is still uncertain, but with homeownership now less incentivized in the tax code, sellers in the upper end of the market may have to adjust their price expectations if they want to trade down or move to less expensive areas,” Yun continued. “This could in turn lead to both a decrease in sales and home values.”

On a more positive note, NAR expects single-family housing starts to increase by 13.3 percent, to 961,000 this year. That could push new-home sales up 15.3 percent compared to the 2016 level, to 701,000, the trade group said. New homes tend to be more expensive and aimed at move-up buyers. More sales of new homes are viewed as a key to increasing the inventory of affordable starter homes. 


 

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