It’s becoming increasingly clear that the recovering housing market is facing some headwinds, including home prices outpacing income growth in some areas and tight supplies.

Home Prices ‘Rising Too Sharply’ in Some Markets as Pending Sales Decline

Home Prices ‘Rising Too Sharply’ in Some Markets as Pending Sales Decline

It’s becoming increasingly clear that the recovering housing market is facing some headwinds, including home prices outpacing income growth in some areas and tight supplies. And all this as mortgage rates are poised to rise slowly in coming months, although they remain historically low.

Pending home sales in November slightly declined for the third time in four months as buyers continue to battle both rising home prices and limited homes available for sale, said the National Association of Realtors today.

The Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 0.9 percent to 106.9 in November, from an upwardly revised 107.9 in October. Economists were expecting a 0.7% increase for November.

“Home prices rising too sharply in several markets, mixed signs of an economy losing momentum and waning supply levels have acted as headwinds in recent months despite low mortgage rates and solid job gains,” said Lawrence Yun, NAR chief economist.

However, feedback from Realtors continues to indicate fairly strong buyer interest, “available listings that are move-in ready and in affordable price ranges remain hard to come by for many would-be buyers,” he added.

Any slowdown in the housing market could be crucial, especially as the Federal Reserve raises interest rates, which should eventually translate into higher mortgage rates. For now, average rates on fixed mortgages remain at about 4 percent.

Most economists note that any increase in mortgage rates will probably be modest, but any jump in rates will be detrimental to the market’s ongoing recovery, especially for prospective buyers already facing affordability issues.

“Especially with mortgage rates likely on the rise, affordability issues could creep up enough to temper sales growth – especially to first-time buyers in higher priced markets,” adds Yun.

Existing-home sales are forecast to finish 2015 at a pace of around 5.25 million – the highest since 2006, but roughly 25 percent below the prior peak set in 2005 (7.08 million).

 

 

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