December marked the second consecutive month of declines in pending home sales, according to data released by the National Association of Realtors on Thursday. After dropping 2.2% in November the Pending Home Sales Index (PHSI) fell another 3.8% in December to 117.7. This value is 6.9% lower than a year ago.
An index level of 100 is equal to the level of contract activity in 2001.
“Pending home sales faded toward the end of 2021, as a diminished housing supply offered consumers very few options,” NAR’s chief economist Lawrence Yun said in a statement. “Mortgage rates have climbed steadily the last several weeks, which unfortunately will ultimately push aside marginal buyers.”
Experts feel that limited inventory and declining affordability are to blame for the decline.
Despite the slowdown in transactions in November and December, Yun said that, overall, 2021 was a great year for housing in terms of sales and price appreciation, but he believes that the market will most likely see a small reduction in sales as mortgage rates continue to rise.
Yun forecasts the 30-year fixed mortgage to jump to 3.9% by the fourth quarter and existing home sales to dip by 2.8% to 5.95 million units.
In more positive news, December marked the third consecutive month of increased home construction, leading Yun to believe that housing inventory will continue to improve, contributing to slower home price growth in 2022. He also forecasts housing starts to rise by 1.65 million units and home prices to increase 5.1%.
“The combination of a more measured demand and rising supply will bring housing prices better in line with wage growth,” Yun said in a statement.
The NAR’s hottest housing markets data for December showed that out of the 40 largest metropolitan areas, Orlando-Kissimmee-Sanford, Fla.; Tampa-St. Petersburg, Fla.; Jacksonville, Fla.; Dallas-Fort Worth-Arlington, Texas; and Denver-Aurora-Lakewood, Colo., were the most improved over the past year.
Regionally, the West had the largest monthly (10.0%) and yearly (16.2%) declines, dropping to 95.0. In the Northeast the PHSI was 98.2 in December, a 1.2% month-over-month decrease and a 10.5% decline from a year ago. In the Midwest, it dropped 3.7% month over month to 112.8, a 1.2% drop from December 2020. Pending home sales transactions in the South dropped 1.8% from the month prior to an index value of 145.2, representing a 3.9% yearly decline.