Cue the sad trombone as pending sales reverse course 

After four months of upward momentum, pending home sales fell in December, closing out the year on a disappointing note. Mortgage rates, meanwhile, held steady.

The increases in pending sales throughout the fall pointed to a possible housing market rebound in 2025, and agents were starting to express more optimism about their sales prospects in the year ahead. 

But much like existing home sales, which ended 2024 at the lowest level since 1995, pending sales appeared to peter out last month, falling 5.5% from November and 5% year-over-year, according to the latest data from the National Association of Realtors — "adding uncertainty to the outlook for the early 2025 housing market," said Bright MLS Chief Economist Lisa Sturtevant.

Lawrence Yun, NAR's chief economist, acknowledged that "one step back is not welcome news," but also noted that "economic data never moves in a straight line."

Mortgage rates flat, but increases 'may be over'

The 30-year fixed-rated mortgage averaged 6.95% this week, according to Freddie Mac — just a hair below last week's 6.96%. 

It's the second week of declines, but it may not be enough to entice buyers, Sturtevant said. "The latest news on mortgage rates suggests that a busy winter home shopping season is less likely than we might have thought as we headed into the new year."

The good news, however, is that the Fed's Jan. 29 decision to pause rate cuts elicited little reaction from financial markets, suggesting that "investors appear to be pricing in a more predictable rate environment," said Samir Dedhia, CEO of One Real Mortgage.

"I anticipate less turbulence than previously expected," Dedhia said, though he noted that some volatility related to Trump administration policies is likely. "The fact that rates did not increase week-over-week is a strong sign that the increases in rates may be over, but we're still in a wait and watch approach for Q1."

Demand, mortgage applications fall

Despite an increase in touring activity, Redfin's Homebuyer Demand Index fell slightly as of Jan. 26, sitting at its lowest level since June. The weekly market report also found that the pace of home sales, as measured by days on market, was the slowest since March 2020.

"Prospective buyers have been cautious because they've seen homes sitting on the market and they've heard interest rates and prices may drop," said Jordan Hammond, a Redfin Premier agent in North Carolina. 

"Now it's pretty clear that sellers aren't slashing asking prices and mortgage rates aren't plummeting, so mindsets are shifting," Hammond said, which could prompt more buyer activity.

For the moment, however, activity is sluggish, pushing mortgage applications down. Compared to the week prior, applications decreased 2% for the week ending Jan. 24, according to the Mortgage Bankers Association. A dropoff in refinance applications accounted for most of the decline, but FHA purchase loans ticked up 2%, which could be a sign of things to come.

"If mortgage rates continue to stabilize and for-sale inventory loosens, we expect a gradual pick up in purchase activity in the coming months," said Joel Kan, MBA's VP and deputy chief economist.