Slowing Home Sales Activity Signals Buyer Hesitancy Amid Rising Mortgage Rates
The Pending Home Sales Index, tracking contract signings on existing homes, plunged 5.5% from November to 74.2 in December, ending a four-month surge. This decline signifies a potential cooling in the housing market as higher mortgage rates deter some buyers.
Contract activity witnessed a nationwide decline, predominantly in expensive regions where mortgage rates significantly impact affordability. The West reported a 10.3% drop, followed by the Northeast with an 8.1% decrease. Year-over-year, contract activity fell 5% across all regions.
"While a single setback is not encouraging after four consecutive months of gains, it's not unexpected," said Lawrence Yun, NAR's chief economist. "Housing demand remains robust despite high mortgage rates, driven by an increase in cash transactions."
Pending home sales, typically preceding completed sales by a month or two, serve as a leading indicator of housing market activity. Despite the Federal Reserve's interest rate cuts, mortgage rates have steadily climbed since autumn, reaching near 7% by year's end.
This surge in mortgage rates, coupled with record-high home prices, contributed to the slowest year for existing home sales in nearly three decades in 2023. Only 4.06 million homes were sold, with a median price of $407,500, as reported by the NAR.
Homeowners benefiting from locked-in mortgage rates around 3% in recent years have shown reluctance to relocate and relinquish their low financing, further restricting market inventory.