Pending home sales continued to climb in January, marking 21 months of consecutive year-over-year gains, according to an industry report released Wednesday.
The Pending Home Sales Index, a forward looking indicator based on contract signings, increased 4.5 percent in January from December, and 9.5 percent from January 2012, the National Association of Realtors reported. The January reading is the highest since April 2010, just before the homebuyer tax credit was set to expire.
But although favorable affordability conditions still exist—home prices are still almost 30 percent off their June 2006 highs according to the latest Case-Shiller Home Price Index—the dynamic in the housing market is changing, experts say.
Negative equity, while dropping according to some estimates, still plagues millions of homeowners, keeping would-be sellers on the sidelines and constraining the inventory of homes for sale. Tighter inventory has been a main factor in the rapid home price growth seen in various parts of the country, the strongest growth recorded in seven years, according to NAR chief economist Lawrence Yun.
"Favorable affordability conditions and job growth have unleashed a pent-up demand," Yun said in a statement. "Most areas are drawing down housing inventory, which has shifted the supply/demand balance to sellers in much of the country."
The burgeoning sellers market could help accelerate the market towards a healthier state, according to some experts. As rising prices spur both sellers and buyers to throw their hats in the ring, inventory and demand could start to normalize.
"In the coming months, it will be interesting to see if prices continue to increase sufficiently to spark would-be sellers and some underwater borrowers to put their homes on the market, which will help increase supply, and begin to set the stage for a healthier overall housing market," Luis Vergara, Managing Director of New York-based Mission Capital Advisors, wrote in an E-mail.
NAR projects about 5 million existing-homes to be sold in 2013. Meanwhile, prices will continue to gain strongly as long as inventory shortages persist.