Pending home sales increased in December for the first time since May 2022 – following six consecutive months of declines – according to the National Association of Realtors (NAR). The Northeast and Midwest recorded month-over-month reductions, while the South and West posted monthly gains. All four U.S. regions saw year-over-year decreases in transactions, with the West experiencing the largest decline at 37.5%.
The Pending Home Sales Index (PHSI) – a forward-looking indicator of home sales based on contract signings – improved 2.5% to 76.9 in December. Year-over-year, pending transactions dropped by 33.8%. An index of 100 is equal to the level of contract activity in 2001.
“This recent low point in home sales activity is likely over,” says NAR Chief Economist Lawrence Yun. “Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market.”
The Northeast PHSI dropped 6.5% from last month to 64.7, a decrease of 32.5% from December 2021. The Midwest index shrank 0.3% to 77.6 in December, a decline of 30.1% from one year ago.
The South PHSI rose 6.1% to 94.1 in December, dropping 34.5% from the prior year. The West index advanced 6.4% in December to 58.6, decreasing 37.5% from December 2021.
“The new normal for mortgage rates will likely be in the 5.5 percent to 6.5% percent,” Yun adds. “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.”