Pending Home Sales Drop For Second Straight Month

After a strong run to close out 2010, the market for home resales softened a bit in January.

On a seasonally-adjusted basis, the Pending Home Sales Index dropped 3 percent last month, and December's figures were revised downward for a loss, too, according to the National Association of REALTORS®.

A "pending home sale" is defined as a home under contract to sell, but not yet closed. 

The forward-looking index is now at a 3-month low on a national level, but still well ahead of its rolling 6-month average.

Unfortunately, national data isn't overly helpful for buyers and sellers of real estate. The National Association of REALTORS® knows this, of course, and makes an effort to get more granular, supplementing the Pending Home Sales Index report with a region-by-region breakdown. 

Between December and January, only the South Region increased in sales volume. The Midwest led the losers:

• Northeast Region: -2.4%
• Midwest Region : -7.3%
• South Region : +1.4%
• West Region : -5.2%

Even still, however, regional data remains too broad to be practical. The South Region, for example, is comprised of multiple states with thousands of cities and town. The housing market dynamics of a specific neighborhood in a specific regional city will differ from that of another neighborhood in another regional city.

Real estate data must be local to be relevant.

Overall, then, what may be most telling from January's Pending Home Sales Index is how weather can influence results.

Most of the country faced drastic weather conditions in January, ranging from raging snowstorms to bitter cold. Events like that tend to put a damper on home sales, a contributing factor in why the number of new contracts fell.

Another reason is rising mortgage rates. Conforming and FHA rates rose week-by-week in January, robbing home buyers of 10% of their purchasing power. This, too, can slow down purchase activity as buyers adjust their expectations.

Looking forward, we should expect the Pending Home Sales Index to resume rising. Inclement weather doesn't kill demand; it just delays it. And mortgage rates have settled somewhat. These two factors should help release pent-up demand just as the Spring Homebuying Season gets underway.

As more buyers enter the market, negotiation leverage will shift to home sellers, pressuring Renton home prices higher. The lowest prices of the year -- and the cheapest financing -- could be what you see today.