Pending home sales rise as loan rates stabilize
For the first time since May, the number of homes under contract increased by a small but notable 2.5%, signaling a potential shift in the market.
Key points:
- The South and West saw monthly increases in pending sales, while contract signings dipped in the Northeast and Midwest.
- NAR’s chief economist said ‘the recent low point’ in sales activity may be over.
Pending home sales inched up 2.5% in December after six straight months of declines, the National Association of Realtors reported Friday.
The South and West regions of the U.S. reported monthly increases in contract signings for home sales, while there were continued declines in the Northeast and Midwest. On a year-over-year basis, pending home sales were down in all four regions.
Declaring that the "recent low point in home sales activity is likely over," Lawrence Yun, NAR chief economist, pointed to moderating mortgage rates as the "dominant factor driving home sales."
With a 2.5% monthly bump in pending home sales, December was the first month since May 2022 to see an increase in sale contracts. "Recent declines in rates are clearly helping to stabilize the market," Yun said, and he expects home loan rates will hover in the 5.5% to 6.5% range.
The overall health of the economy will also affect home purchases. "Job gains will steadily become important in driving local home-sales markets," Yun said, forecasting that the South is likely to outperform the rest of the country as employment conditions improve ahead of the rest of the country.
And buyers may be ready to act, said Bright MLS Chief Economist Lisa Sturtevant. "There are many prospective buyers who have come to accept the new normal of 6% mortgage rates and are tired of sitting out the opportunity to buy a home." She predicted that buyer activity could surge if rates remain stable or come down further.
NAR's monthly pending home sales index is a report that gauges future home sales based on contract signings to buy homes. An index of 100 would be equal to contract activity in 2021, NAR said. The index was at 76.9 in December and pending transactions were off 33.8% over 2021.
Hannah Jones, economic data analyst at Realtor.com, said the lower pending contract numbers year-over-year underscore "the housing market's ongoing struggle with affordability, as ample housing demand remains frozen by high prices and mortgage rates."
Like Yun, Jones also expressed optimism about the impact of stabilizing mortgage rates on consumer activity in the real estate market. "To the delight of many, mortgage rates have continued to fall, offering buyers the opportunity to dip a toe back into the market."
Jones noted that mortgage rates are still more than three points higher than the previous year. For a median-priced home, consumers spent $730 more in December 2022 than they did in 2021.
Here is a look by region at pending home sales in December compared to the previous month and the previous year:
Northeast: Pending home sales were down 6.5% from the previous month and 32.5% from December 2021.
Midwest: Contract signings were off by just .3% in December compared to the previous month, for a decline of 30% from 2021.
South: Pending home sales increased 6.1% month over month. Compared to December 2021, the numbers were down 34.5%
West: Contract signings were up 6.4% in December over the previous month. But they were down 37.5% year over year.
