Contracts to purchase existing homes in the United States fell sharply by 5.5% in December 2024 compared to the previous month, marking the end of four consecutive months of gains, according to the National Association of Realtors (NAR). This decline indicates growing challenges for buyers as the housing market navigates rising mortgage rates.
The Pending Home Sales Index (PHSI), which serves as a leading indicator of home sales based on signed contracts, slipped to 74.2, the lowest level since August. Year-over-year contract signings also saw a decrease of 5%, underscoring the broader struggles within the housing market, especially as buyers confront elevated interest rates.
Throughout December, buyers encountered fluctuated mortgage rates, which peaked again above 7%, potentially dampening demand during the holiday season. The average rate on the 30-year fixed mortgage had already risen from 6.68% to as high as 7.14% within the month, marking what many analysts suggest is causing emotional apprehension among potential buyers.
Lawrence Yun, chief economist for NAR, highlighted the impact of these high mortgage rates on regions with elevated home prices. “Contract activity fell more sharply in the high-priced regions of the Northeast and West, where elevated mortgage rates have appreciably cut affordability,” he stated. According to Yun, job gains tend to have greater impact within more affordable regions, but it remains unclear if severe winter weather affected purchasing dynamics.
All four regions of the U.S. witnessed month-over-month declines, with the West recording the steepest drop at 10.3%, closely followed by the Northeast at 8.1%. The Midwest saw its index fall by 4.9%, and the South witnessed the smallest decrease at 2.7%. Notably, the West's situation is concerning as it reflects the drastic impact of high prices, especially when home prices continue to rise across the nation.
Despite the pending sales slump, January 2025 saw mortgage applications to buy homes plummeting as well, with the Mortgage Bankers Association reporting applications were down 7% compared to the same week last year. This trend has set off alarms over the homebuying demand, which shows no signs of recovering swiftly from these recent drops.
One eye-catching fact is the rate at which homes are being sold, which reached the slowest pace observed over the last five years. Homes listed for sale are now sitting on the market for longer periods, averaging 54 days before going under contract—an increase from previous months. This is the longest duration since March 2020 and reflects growing buyer hesitance amid uncertainty.
Rebecca Blanco, a realtor based out of North Carolina, shared insights on current market sentiments. “Prospective buyers have become cautious,