This story was originally published on Builder.

Pending home sales rose 0.5 percent in December to a level of 110.1, the third consecutive month of gains, the National Association of Realtors reported Wednesday.

The group also said it expects existing-home sales and price growth to moderate in 2018, primarily because of the new tax law's expected impact in high-cost housing markets.

The PHSI in the Northeast dipped 5.1 percent to 93.9 in December, 2.7 percent below a year ago. In the Midwest the index decreased 0.3 percent to 105.0 in December, 0.3 percent higher than December 2016. Pending home sales in the South grew 2.6 percent to an index of 126.9 in December, 4.0 percent higher than last December. The index in the West rose 1.5 percent in December to 101.7, 3.1 percent below a year ago.

Pending Home Sales (PRNewsfoto/National Association of Realtors)
Hand-out Pending Home Sales (PRNewsfoto/National Association of Realtors)

Lawrence Yun, NAR chief economist, said pending sales reached their highest level since last March (111.3). "Another month of modest increases in contract activity is evidence that the housing market has a small trace of momentum at the start of 2018," he said. "Jobs are plentiful, wages are finally climbing, and the prospect of higher mortgage rates are perhaps encouraging more aspiring buyers to begin their search now."

Added Yun, "Sadly, these positive indicators may not lead to a stronger sales pace. Buyers throughout the country continue to be hamstrung by record low supply levels that are pushing up prices—especially at the lower end of the market."

The uninterrupted supply and demand imbalances throughout the country fueled price appreciation to 5.8 percent in 2017, which was the sixth straight year of gains at or above 5 percent. While tight inventories are still expected to put upward pressure on prices in most areas this year, Yun said he expects overall price growth to shrink, with some states even experiencing a decline, because of the negative effect the changes to the mortgage interest deduction and state and local deductions under the new tax law. See NAR's 2018 state forecast for a look at home price projections.

"In the short term, the larger paychecks most households will see from the tax cuts may give prospective buyers the ability to save for a larger down payment this year, and the healthy labor economy and job market will continue to boost demand," said Yun. "However, there's no doubt the nation's most expensive markets with high property taxes are going to be adversely impacted by the tax law."

Added Yun, "Just how severe is still uncertain, but with home ownership now less incentivized in the tax code, sellers in the upper end of the market may have to adjust their price expectations if they want to trade down or move to less expensive areas. This could in turn lead to both a decrease in sales and home values."

After expanding 1.1 percent in 2017 to 5.51 million, Yun does anticipate a slight increase (0.5 percent) in existing sales this year (5.54 million). Single-family housing starts are forecast to jump 13.3 percent to 961,000, which will push new home sales up 15.3 percent to 701,000 (608,000 in 2016).

This story was originally published on Builder.