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In December, signed contracts for existing homes saw a notable decrease of 5.5% compared to November, and a 5% decline year-over-year, as reported by the National Association of Realtors. This decline marked the end of a four-month upward trend, bringing the index to its lowest point since August.
Pending sales are a critical indicator of upcoming closings and provide insights into current market dynamics. Many buyers were confronted with a significant surge in mortgage interest rates during December, which may have contributed to this drop in demand.
The average rate for a 30-year fixed mortgage fluctuated from a low of 6.68% on December 6 to a high of 7.14% by December 19. Realtors noted that while buyers were adjusting to a “new normal” characterized by higher interest rates, the 7% threshold has emerged as a significant psychological barrier for many.
In contrast to existing homes, sales of newly constructed homes, which are also tracked via signed contracts, experienced growth in December, as per data from the U.S. Census. This increase has been attributed to homebuilders actively working to reduce mortgage rates in order to attract potential buyers.
Pending sales fell across all regions, with the most pronounced decreases reported in the West and Northeast—recording drops of 8.1% and 10.3%, respectively. These areas also happen to have the highest home prices.
“The decline in contract activity was especially steep in the high-cost areas of the Northeast and West, where elevated mortgage rates have significantly impacted affordability,” stated Lawrence Yun, chief economist for the National Association of Realtors. “Moreover, job growth tends to have a more substantial influence in regions with more affordable housing. It’s uncertain whether unusually heavy winter precipitation affected purchase timing.”
Nationally, home prices remain elevated and continue to rise, with annual gains increasing throughout the late fall and early winter months, according to the latest S&P Case-Shiller national home price index.
As January progressed, homebuying demand showed no signs of recovery. Mortgage applications for home purchases during the last week of January were down 7% compared to the same week in the prior year, as noted by the Mortgage Bankers Association.
Additionally, homes are currently selling at the slowest pace observed in five years, according to a recent report from Redfin. For the four-week period ending January 26, homes that went under contract averaged 54 days on the market before receiving an accepted offer, the longest wait time since March 2020 and a full week longer than the previous year.
This slowdown occurs in tandem with a marked increase in the supply of homes available for sale. Newly listed homes surged by over 37% in January compared to December, as reported by Realtor.com.
“The increase in seller activity could signal a turning point in the prolonged standoff between buyers and sellers, exacerbated by high mortgage rates,” commented Danielle Hale, chief economist at Realtor.com. “This rise may also result from residual effects of lower mortgage rates experienced in the fall, although these advantages may soon dissipate.”
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