US pending home sales drop unexpectedly in 11 months

A gauge of pending home sales in the United States unexpectedly fell in January for a third month as high prices and low inventory continued to restrain home purchases.

The National Association of Realtors’ pending home sales index fell 5.7% from the previous month to 109.5, the biggest drop since February 2021, data showed Friday. The figure was worse than any estimate in a Bloomberg survey of economists.

The numbers suggest homebuyers are still struggling to enter a housing market marked by record prices and lean inventory. It will only become less affordable as mortgage rates rise ahead of the Federal Reserve’s planned interest rate hikes.

“Given the market situation – mortgages, house prices and inventory – it would not be surprising to see a decline in demand for housing,” Lawrence Yun, chief economist at NAR, said in a statement.

Contract signings fell in three of the four regions from the previous month, led by a 12.1% drop in the North East. West posted the only gain.

Compared to the previous year, contract signatures decreased by 9.5% on an adjusted basis and by 9.1% on an unadjusted basis.

A separate report last week showed sales of previously owned U.S. homes hit a one-year high in January. Pending home sales data is often considered a leading indicator of existing home sales, given that they are usually under contract for a month or two before being sold.

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

Earlier data on Friday showed that inflation-adjusted consumer spending and orders placed with U.S. factories both rose more than expected in January.