Pending home sales took a significant hit in December, marking a stark reversal after four consecutive months of growth. The National Association of Realtors reported a 5.5% decrease in signed contracts on existing homes from the previous month, while year-over-year figures showed a 5% decline. Buyers encountered a surge in mortgage interest rates during their December shopping, which likely contributed to this downturn.
The West and Northeast regions experienced the most substantial monthly declines, with pending sales dropping by 8.1% and 10.3% respectively. The index fell to its lowest level since August, indicating a shift in market dynamics. Danielle Hale, chief economist at Realtor.com, suggested that this shift in seller activity might indicate a pivotal moment in the ongoing high mortgage rate-induced standoff between buyers and sellers.
"The shift in seller activity could mark a turning point in the high mortgage rate-induced standoff between buyers and sellers," – Danielle Hale, chief economist at Realtor.com.
In December, homebuyers faced a notable hike in interest rates, with the average rate on a 30-year fixed mortgage jumping from 6.68% on December 6 to 7.14% by December 19. Consequently, homes lingered on the market longer, with listings going under contract after an average of 54 days before sellers accepted offers. This duration marks the longest span since March 2020, and it is a week longer compared to this time last year.
Despite the slowdown in existing home sales, the U.S. Census reported gains in the sales of newly built homes. However, homes are currently selling at the slowest rate in five years, according to a report from Redfin. Lawrence Yun, chief economist for the Realtors, noted that the steepest drops occurred in high-priced regions like the Northeast and West due to reduced affordability.
"Contract activity fell more sharply in the high-priced regions of the Northeast and West, where elevated mortgage rates have appreciably cut affordability," – Lawrence Yun, chief economist for the Realtors.
Interestingly, January saw a substantial increase in newly listed homes, with numbers rising over 37% compared to December. This influx of new listings may signal a change in market conditions. Nonetheless, mortgage applications for home purchases last week were still 7% lower than the same period one year ago.
While it remains unclear whether heavier-than-usual winter precipitation affected purchase timelines, the housing market continues to grapple with uncertainties. With rates fluctuating and seller activity evolving, stakeholders are closely monitoring these changes.