After half a year of declining contract signings, new data from the National Association of REALTORS® (NAR) shows that pending home sales in December snapped the cold streak.
NAR’s Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contract signings, increased by 2.5% to 76.9 last month, and year-over-year sales decreased by 33.8%. An index of 100 is equal to the level of contract activity in 2001.
Contract signings fell in both the Northeast and Midwest and picked up steam in the South and the West.
Regional Breakdown:
Northeast
-6.5% MoM — Now 64.7 PHSI
-32.5% YoY
Midwest
-0.3% MoM — 77.6 PHSI
-30.1% YoY
South
+6.1% MoM — 94.1 PHSI
-34.5% YoY
West
+6.4% MoM — 58.6 PHSI
-37.5% YoY
The takeaway:
“This recent low point in home sales activity is likely over,” said NAR Chief Economist Lawrence Yun. “Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market.
“The new normal for mortgage rates will likely be in the 5.5% to 6.5% range. Job gains will steadily become important in driving local home-sales markets. The South, in particular, is set to outperform the rest of the country, thanks primarily to better job market conditions in this part of the country compared to other regions,” Yun concluded.
“December’s pending data suggests that the housing market may have bottomed out,” said Bright MLS Chief Economist Dr. Lisa Sturtevant. “Buyer activity pulled back late last year as mortgage rates hit 20-year highs. But rates have fallen, and today’s report is another sign that buyers are back. Mortgage applications jumped last week as rates fell to their lowest level since September. Both home showings and new contract activity has increased in many local markets, with some agents reporting a return to bidding wars and multiple offers.
“Predictions of a housing market collapse are way off base. 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. So, while the 2023 housing market will be slower than the market during 2021 or even the first half of 2022, there could be an unexpected first-quarter surge in buyer activity if rates stabilize or even come down further in the coming weeks,” Sturtevant concluded.
“Pending home sales are still down 33.8% compared to last December, highlighting the housing market’s ongoing struggle with affordability, as ample housing demand remains frozen by high prices and mortgage rates,” said realtor.com® Economic Data Analyst Hannah Jones. “Though mortgage rates fell as low as 6.27% in December, down 0.8 percentage points from November’s high, home prices remained elevated, up 8.4% compared to the previous year.
“To the delight of many, mortgage rates have continued to fall, dropping to levels not seen since September, offering buyers the opportunity to dip a toe back into the market. Even with December’s retreat, though, mortgage rates remained more than three percentage points higher than the previous year, which means that the mortgage payment for a median-priced home was $730 higher than in December 2021. As a result, many buyers remain on the sidelines, waiting for conditions to improve.
“Though the market is still tipped in sellers’ favor, many homeowners have reconsidered their plans to sell as fewer buyers competing means less potential upside. The ongoing lack of affordability has limited buyer activity this winter, but this month’s retreat in mortgage rates has shown how eager buyers are to get back into the market. Lower interest rates and the coming spring home-buying season promise more opportunities for buyers and sellers alike,” Jones concludes.
