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Pending home sales dropped in January, marking the third consecutive month with a decrease in transactions, according to the National Association of Realtors (NAR). The Pending Home Sales Index (PHSI) fell 5.7% to 109.5 in January, and transactions decreased 9.5% on a year-over-year basis. An index level of 100 is equal to the level of contract activity in 2001.

“With inventory at an all-time low, buyers are still having a difficult time finding a home,” NAR chief economist Lawrence Yun says. “Given the situation in the market—mortgages, home costs, and inventory—it would not be surprising to see a retreat in housing demand.”

In addition to supply constraints, house hunters also face escalating home prices and rising interest rates. The NAR says rates jumped by nearly a percentage point in January from December, adding to monthly mortgage costs. The NAR expects economic conditions to remain volatile in the coming months, with the impending conclusion of the Federal Reserve’s asset purchase program in March potentially paving the way for higher interest rates. Additionally, the Russia-Ukraine conflict is likely to affect global oil supply, imposing further burdens on inflation and bringing about more aggressive rate hikes.

Of the four U.S. regions, only the West registered an increase in month-over month contract activity. All four regions posted a decline on a year-over-year basis.

Month over month, the Northeast PHSI decreased 12.1% in January. The index in the Northeast declined 16.7% on a year-over-year basis. The index in the Midwest declined 5.9% in January compared with December and 5.9% compared with January 2021.

Pending sales transactions in the South dropped 6.3% in January and fell 8.7% on a year-over-year basis. The PHSI in the West increased 1.5% in January but decreased 9.7% compared with a year ago.

Of the 40 largest metros in the U.S., the most improved markets over the past year were Orlando-Kissimmee-Sanford, Florida; Tampa-St. Petersburg, Florida; Jacksonville, Florida; Nashville-Davidson-Murfreesboro-Franklin, Tennessee; and Las Vegas-Henderson-Paradise, Nevada.