Housing contract activity slowed down in December, suggesting higher mortgage rates are giving some buyers pause.
The Pending Home Sales Index, which tracks contract signings on existing homes, dropped 5.5% from November to 74.2, snapping a four-month streak of gains, according to the National Association of Realtors (NAR). An index level of 100 is equal to contract activity in 2001.
Contract signings declined in all parts of the country, led by the most expensive regions where mortgage rates have the biggest effect on affordability. The West saw a 10.3% drop in activity, followed by the Northeast with an 8.1% decline.
Compared to a year ago, contract activity across all regions dropped 5%.
“After four straight months of gains in contract signings, one step back is not welcome news, but it is not entirely surprising,” Lawrence Yun, NAR’s chief economist, said in a statement. “Economic data never moves in a straight line. High mortgage rates have not significantly dented housing demand due to greater numbers of cash transactions.”
Homes typically go under contract a month or two before a sale is completed, making pending home sales a leading indicator of housing market activity.
Despite multiple cuts to benchmark interest rates by the Federal Reserve, mortgage rates rose throughout the fall and ended the year near 7%.
The rate pain, which comes alongside median home prices hitting a new all-time high, helped make last year the slowest for existing home sales in nearly three decades. Just 4.06 million homes sold last year at a median price of $407,500, according to the NAR.
Homeowners who locked in mortgage rates of around 3% in recent years have also been reluctant to move and give up that cheap financing, limiting inventory on the market.
Claire Boston is a senior reporter for chof360 Finance covering housing, mortgages, and home insurance.
