Pending home sales fell for the second consecutive month in December, according to the National Association of Realtors (NAR). The Pending Home Sales Index (PHSI) decreased 3.8% to 117.7 in December, and, 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,” says Lawrence Yun, NAR’s chief economist. “Mortgage rates have climbed steadily the last several weeks, which unfortunately will ultimately push aside marginal buyers.”
Despite the slowdown in transactions during December, Yun says 2021 was “an overall great period” for housing in terms of sales and price appreciation. He forecasts the 30-year fixed mortgage rate will jump to 3.9% by the fourth quarter of 2022 and existing home sales will decrease by 2.8% to 5.95 million units during the year.
December marked the third consecutive month of increased home construction, and Yun projects housing inventory will continue to improve 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,” says Yun.
Each of the four major U.S. regions posted both month-over-month and year-over-year drops in contract activity.
The Northeast PHSI fell 1.2% month over month and decreased 10.5% on a year-over-year basis. The index in the Midwest decreased 3.7% in December and 1.2% compared with December 2020. Pending home sales transactions in the South decreased 1.8% on a month-over-month basis and 3.9% on a year-over-year basis. The index in the West decreased 10% in December and 16.2% compared with December 2020.
Of the 40 largest metros in the U.S., the most improved markets over the past year were Orlando-Kissimmee-Sanford, Florida; Tampa-St. Petersburg, Florida.; Jacksonville, Florida; Dallas-Fort Worth-Arlington, Texas; and Denver-Aurora-Lakewood, Colorado.
