According to the National Association of Realtors, pending home sales fell in December 2021, denoting two straight months of declines. All four major U.S. regions posted both month-over-month and year-over-year drops in contract activity.
The Pending Home Sales Index, a forward-looking indicator of home sales based on contract signings, fell 3.8% to 117.7 in December. Year-over-year, transactions decreased 6.9%. An index 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," said Lawrence Yun, NAR's chief economist. "Mortgage rates have climbed steadily the last several weeks, which unfortunately will ultimately push aside marginal buyers."
Even with December's slowdown in transactions, Yun says last year was an overall great period for housing in terms of sales and price appreciation.
"The market will likely endure a minor reduction in sales as mortgage rates continue to edge higher," he added.
Yun forecasts the 30-year fixed mortgage rate to jump to 3.9% by the fourth quarter and existing-home sales to dip by 2.8% to 5.95 million units.
With December marking a third straight month of increased home construction, Yun expects housing inventory to continue improving and contribute to slower home price growth in 2022. He forecasts housing starts to rise to 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.
Realtor.com's Hottest Housing Markets data in December showed that out of the largest 40 metros, the most improved markets over the past year were Orlando-Kissimmee-Sanford, Fla.; Tampa-St. Petersburg, Fla.; Jacksonville, Fla.; Dallas-Fort Worth-Arlington, Texas; and Denver-Aurora-Lakewood, Colo.
December Pending Home Sales Regional Breakdown
Month-over-month, the Northeast PHSI fell 1.2% to 98.2 in December, a 10.5% decline from a year ago. In the Midwest, the index dropped 3.7% to 112.8 last month, down 1.2% from December 2020.
Pending home sales transactions in the South slid 1.8% to an index of 145.2 in December, down 3.9% from December 2020. The index in the West decreased 10.0% in December to 95.0, down 16.2% from a year prior.