While many real estate reports produce data on monthly improvements and declines, year-over-year information, such as the Pending Home Sales Index from the National Association of Realtors may be a better indicator of overall recovery to the national housing market.
Many factors can contribute to month-over-month changes, but don't necessarily represent realistic market conditions. The PHSI fell 4.3 percent in December, bringing it to a level of 101.7 from 106.3 posted in November. Despite the monthly drop, the index was 6.9 percent higher than the index from December 2011, suggesting the housing market is healthier and demand for homeownership has returned.
2012 was a year of recovery for most housing market factors, as home prices grew significantly while mortgage rates remained low providing affordability to those making the investment. These conditions prompted many prospective buyers to be active, increasing sales throughout much of the year. This also resulted in a lower inventory by the end of the year, which likely contributed to a fall in contract signings in the December, as noted by NAR chief economist Lawrence Yun.
"The supply limitation appears to be the main factor holding back contract signings in the past month," said Yun. "Still, contract activity has risen for 20 straight months on a year-over-year basis. Buyer interest remains solid, as evidenced by a separate Realtor survey which shows that buyer foot traffic is easily outpacing seller traffic."
Western region still struggled to recover, others post year-over-year improvements
Many states in the West were hit hard by foreclosures throughout the housing market slump, and may be reason for a 5.3 percent annual PHSI decline in the region. The index also slipped 8.2 percent from November's level, the largest drop seen nationwide.
In the South, pending home sales fell 4.5 percent, lowering the index to 111.5 in December. However, activity was still 10.1 percent higher when compared to the index from December 2011. The Northeast also saw a month-over-month decline, as the PHSI dropped 5.4 percent to 78.8 but was 8.4 percent higher on an annual measurement. The Midwest posted a 0.9 percent increase from November, bringing the index to 104.8 in the final month of 2012.
Yun noted that sales should rise in the spring, when home buying is traditionally more popular, as evident in real estate records. Added homes to the market will also provide prospective buyers with more to choose from when seeking out the ideal home to purchase.