Signed contracts on existing homes experienced a significant decline of 5.5% in December compared to the previous month and dropped by 5% from the previous year, as reported by the National Association of Realtors. This decrease followed four consecutive months of increases, resulting in the index reaching its lowest level since August.
Pending sales, which are considered a predictor of future closings and provide insight into market activity, were impacted by buyers facing a notable increase in mortgage interest rates in December. The average rate for a 30-year fixed mortgage rose from 6.68% on Dec. 6 to 7.14% on Dec. 19. Realtors noted that buyers seemed to struggle with the emotional barrier of the 7% interest rate mark.
While sales of newly constructed homes showed growth in December according to the U.S. Census, homebuilders resorted to lowering mortgage rates aggressively to attract customers. Pending sales declined across all regions, with the West and Northeast experiencing the most significant monthly drops at 8.1% and 10.3%, respectively, due to the higher home prices in these areas.
Lawrence Yun, the chief economist for the National Association of Realtors, highlighted that the decline in contract activity was more pronounced in the expensive Northeast and West regions, where elevated mortgage rates have reduced affordability. Yun also mentioned that job gains tend to have a more significant impact in more affordable regions, and the impact of winter weather on purchase timing remains uncertain.
Despite the high and increasing prices of homes nationwide, demand for home purchases did not show signs of recovery in January. Mortgage applications for home purchases were 7% lower compared to the same week a year ago, according to the Mortgage Bankers Association. Additionally, homes are taking longer to sell, with the typical listing sitting on the market for 54 days before receiving an offer, the slowest rate in five years.
The increase in the supply of homes for sale is a notable development, with newly listed homes rising by over 37% in January compared to December, according to Realtor.com. Danielle Hale, chief economist at Realtor.com, suggested that this shift in seller activity could signal a change in the standoff between buyers and sellers induced by high mortgage rates, possibly influenced by the residual impact of lower rates from the fall.
