While it didn't serve to completely recoup the 4.7 percent loss in January, pending home sales did snap back strongly in February.  The National Association of Realtors® (NAR) said its Pending Home Sales Index (PHSI) rose to 107.5 from a revised 104.3 (from 104.6) in January, an increase of 3.1 percent.  Even with the February rebound, the PHSI lagged February 2017's index by 4.1 percent.   It should be noted, however, that last February's reading of 112.1 was the second highest since May 2006 (112.5).

Analysts polled by Econoday made a near direct hit on the month's results with a consensus of a 3.0 percent increase.  That consensus was obtained however from an unusually wide range of estimates, from 0.5 to 6.0 percent.

The PHSI is a forward-looking indicator derived from contracts for existing home purchases.  Those contracts are expected to become closed sales within one or two months.

Lawrence Yun, NAR chief economist, noted the ragged start for the housing market thus far in 2018.   "Contract signings rebounded in most areas in February, but the gains were not large enough to keep up with last February's level, which was the second highest in over a decade (112.1)," he said.  "The expanding economy and healthy job market are generating sizeable homebuyer demand, but the miniscule number of listings on the market and its adverse effect on affordability are squeezing buyers and suppressing overall activity."

Added Yun, "Expect ongoing volatility in the Northeast region at least through March. Although pending sales there bounced back in February following January's cold weather-related decline, the multiple winter storms over these last few weeks likely put a chill on contract signings once again this month."  

Yun said the spring market is now in full swing and its success will depend on how well both buyers and sellers adjust to the steady increase in mortgage rates that began late last year.  With home prices up 5.9 percent year-over-year, higher borrowing costs will only add to the pressures on buyer's budgets, he said.   In addition, sellers are confronting difficult choices, as putting their homes up for sale could mean losing the low mortgage rates, especially if they refinanced in recent years.  If they chose to stay put that would end hopes of substantially increasing the tight inventories of existing homes.

He added, "Even if new home construction starts picking up at a faster pace this year, as expected, existing sales will fail to break out if these record low supply levels do not recover enough to meet demand." 

Yun now forecasts that existing-home sales will total around 5.51 million this year, little changed from 2017, and median prices will increase around 4.2 percent. Last year exiting home sales were up 4.2 percent while prices rose 5.8 percent.

As Yun noted, the PHSI in the Northeast surged 10.3 percent to 96.0 in February, but that did not wipe out the 5.1 percent deficit when compared to the previous February.  The Midwest's index inched forward 0.7 percent to 98.9 but also remained far behind a year earlier, down 9.5 percent.  

Pending home sales in the South rose 3.0 percent to an index of 125.7 but are also lower year-over-year, by 1.5 percent. The index in the West was 96.9, up 0.4 percent from January, but down 2.2 percent on an annual basis.

The Pending Home Sales Index is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.