U.S. pending home sales decline sharply in January, existing home sales to slow in months ahead

U.S. pending home sales saw sharp fall in the month of January. The index of pending home sales dropped 4.7 percent sequentially, to its lowest in about three years. The data released today are lower than consensus expectations of 0.5 percent.

The fall was fairly well-distributed throughout regions. The biggest declines were seen in the Northeast and the Midwest. The West and South saw slightly smaller falls. The pending home sales index is based on signed real estate contracts for existing single-family homes, condos and co-ops. Thus, it is a good leading indicator of housing sector activity and leads existing home sales by one-two months.

The decline in index in January probably reflects the tight inventory situation and the affordability impediments faced by buyers, given strong home price appreciation. This suggests that existing home sales are expected to slow in the months ahead, noted Barclays in a research report.

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