Pending home sales rose in December for the first time since May 2022, increasing 2.5 percent from the previous month, the National Association of Realtors (NAR) reported on Friday.
By region, the Northeast and Midwest saw month-over-month decreases as the South and West saw month-over-month gains. All regions saw an annual decline in transactions, with the West seeing the sharpest decline at 37.5 percent.
“This recent low point in home sales activity is likely over,” NAR Chief Economist Lawrence Yun said in a statement. “Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market.”
The Pending Home Sales Index (PHSI) increased 2.5 percent to 76.9 from November to December. On an annual basis, pending sales declined by 33.8 percent. An index of 100 represents the level of contract activity in 2001.
In the Northeast, the PHSI declined 6.5 percent month-over-month and 32.5 percent year over year to 64.7. In the Midwest, the PHSI only dropped 0.3 percent from the previous month and 30.1 percent from the previous year to 77.6.
The West saw the largest gains, with pending sales increasing 6.4 percent from November, while declining 37.5 percent year over year, to a PHSI of 58.6. In the South, the PHSI increased 6.1 percent month-over-month and decreased 34.5 percent on an annual basis. to 94.1.
Yun added that consumers and their agents should prepare for a new normal when it comes to mortgage rates.
“The new normal for mortgage rates will likely be in the 5.5 percent to 6.5 percent range,” he said in NAR’s report. “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.”
A report released by Redfin on Thursday showed that pending home sales dropped 26 percent on an annual basis during the four weeks ending Jan. 22, which represented the smallest decline in over three months of the company’s collected data. With nearly a full percent decline in mortgage rates over the past couple of months, Redfin agents saw buyers come back to the market with greater confidence, as well as entice new buyers to enter the market for the first time.
“Homebuyers are starting to feel more confident as mortgage rates tick down closer to 6 percent than 7 percent and the overall economy chugs along with surprising resilience, especially in the labor market,” Redfin Economics Research Lead Chen Zhao said in a statement.
“Steadily cooling inflation is likely to prevent mortgage rates from jumping back up,” Zhao added. “When rates were seesawing up and down in the fall, many buyers dropped out because they could wake up the day after finding their dream home to a three-digit increase in their potential monthly payment. Now they have a better sense of how far their budget will go in which neighborhoods and which homes they can afford.”