Housing Contract Activity Declines in December Amid Mortgage Rate Surge
Data from the National Association of Realtors (NAR) indicates a 5.5% month-over-month decrease in the Pending Home Sales Index from November to 74.2, ending a four-month growth streak. This index reflects contract signings on existing homes, with a baseline of 100 representing activity in 2001.
The decline in contract signings was observed nationwide, with the most expensive regions experiencing the most significant impact due to the substantial influence of mortgage rates on affordability. The West saw a 10.3% drop, while the Northeast followed with an 8.1% decrease. Year-over-year, contract activity fell by 5% across all regions.
"While this setback is not ideal, it's not unexpected given the economic landscape," said Lawrence Yun, NAR's chief economist. "Mortgage rates remain elevated despite interest rate cuts, but the housing market has been buoyed by the rise in cash transactions."
Pending home sales serve as a leading indicator of housing market activity, as contracts are typically signed one to two months before a sale is finalized. Despite the Federal Reserve's interest rate reductions, mortgage rates have risen throughout the autumn, ending the year around 7%.
Coupled with record-high median home prices, the surge in mortgage rates has contributed to the slowest year for existing home sales in nearly three decades. In 2022, only 4.06 million homes were sold, with a median price of $407,500, according to NAR.
Furthermore, homeowners who secured low mortgage rates in recent years are reluctant to relocate and relinquish their advantageous financing, further limiting market inventory.