(CN) - Fewer Americans signed contracts to buy homes in January as higher mortgage rates and rising prices pushed by the limited supply of available residences inspired many to rethink their desire to plunge into the housing market.
The National Association of Realtors reported Monday that its seasonally adjusted pending home sales index fell 2.8 percent to 106.4, the lowest level in a year.
The pending home sales index in the West plunged 9.8 percent in January and is now slightly below where it was a year ago.
The West includes some of the highest-priced housing markets in the country, particularly San Francisco, Seattle, and Denver.
Contract signings also fell in the Midwest, while rising in the Northeast and inching up in the South.
Lawrence Yun, the trade group's chief economist, said home shoppers in January faced numerous obstacles in their quest to buy a home.
"The significant shortage of listings last month along with deteriorating affordability as the result of higher home prices and mortgage rates kept many would-be buyers at bay," he said.
"Buyer traffic is easily outpacing seller traffic in several metro areas and is why homes are selling at a much faster rate than a year ago 1. Most notably in the West, it's not uncommon to see a home come off the market within a month," Yun continued.
The economist said interest in buying a home is the highest it has been since the Great Recession. Households are feeling more confident about their financial situation, job growth is strong in most of the country and the stock market has seen record gains in recent months.
While these factors bode favorably for increased sales in coming months, buyers are dealing with challenging supply shortages that continue to run up prices in many areas.
"January's accelerated price appreciation 2 is concerning because it's over double the pace of income growth and mortgage rates are up considerably from six months ago," Yun said. "Especially in the most expensive markets, prospective buyers will feel this squeeze to their budget and will likely have to come up with additional savings or compromise on home size or location."
Existing-home sales are forecast to be around 5.57 million this year, an increase of 2.2 percent from 2016's 5.45 million existing-home sales.
The national median existing-home price this year is expected to increase around 4 percent. In 2016, existing sales increased 3.8 percent and prices rose 5.1 percent.
"Sales got off to a fantastic start in January, but last month's retreat in contract signings indicates that activity will likely be choppy in coming months as buyers compete for the meager number of listings in their price range," Yun said.
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