Housing Contract Activity Slows amid Rising Mortgage Rates
The Pending Home Sales Index, a barometer of existing home contract signings, declined 5.5% from November to 74.2 in December, ending a four-month upward trend, as per the National Association of Realtors (NAR). Contract signings witnessed a downturn in all regions, with the most expensive areas experiencing the most significant impact due to the affordability challenges posed by higher mortgage rates.
The West witnessed a 10.3% drop in activity, followed by the Northeast with an 8.1% decline. Year-over-year, contract activity across all regions fell by 5%.
"After four consecutive months of contract signing gains, one step back is not favorable, but it is not unexpected," remarked Lawrence Yun, NAR's chief economist. "Economic data seldom follows a linear path. Despite higher mortgage rates, housing demand remains strong due to a rise in cash transactions."
Typically, homes are placed under contract a month or two before sale completion, making pending home sales a leading indicator of housing market activity. Despite multiple interest rate cuts by the Federal Reserve, mortgage rates climbed throughout the autumn, reaching near 7% towards the end of the year.
The surge in mortgage rates, coupled with record median home prices, contributed to the slowest year for existing home sales in almost three decades. According to NAR, only 4.06 million homes were sold last year, with a median price of $407,500.
Moreover, homeowners who have secured low mortgage rates of approximately 3% in recent years are reluctant to move and surrender such favorable financing, further constraining market inventory.