US Pending Home Sales Drop, Snapping Four Months of Gains

The U.S. housing market has experienced a significant setback, with pending home sales dropping in December, snapping a four-month streak of gains. This reversal highlights the ongoing challenges in the market, as elevated mortgage rates, rising home prices, and a limited supply of homes continue to impact buyer demand. According to the National Association of Realtors (NAR), pending home sales fell 4.5% month over month on a seasonally adjusted basis, the largest decline since October 2022.

The decline in pending home sales can be attributed to several factors, including:

1. Increasing mortgage rates: After inching downward at the beginning of December, mortgage rates reversed course and have been rising since. The weekly average 30-year-fixed mortgage rate now sits at 7.04%, the highest level since May, after hitting an early-December low of 6.6%. This increase in mortgage rates makes home purchases more expensive, reducing the buying power of home hunters.
2. High cancellation rates: Nearly 40,000 home-purchase agreements were canceled in December, equal to 16.2% of homes that went under contract that month. This is the highest December percentage in records dating back to 2017 and is up from 15.1% a year earlier. The high cancellation rates indicate that buyers are becoming more cautious due to the uncertainty in the market.
3. Shortage of homes for sale: At the end of December, there were just 1.15 million homes on the market, well below the monthly historical average of about 2.25 million. This shortage of homes for sale has helped prop up prices and keeps many homebuyers and sellers on the sidelines.

These factors, combined with the broader trends in the U.S. housing market, contribute to the recent decline in pending home sales. The elevated mortgage rates, rising home prices, and limited inventory have made it challenging for buyers to enter the market, leading to a slowdown in sales.

Looking ahead, the increase in mortgage rates is likely to continue influencing the housing market in the coming months. As mortgage rates remain elevated and volatile throughout 2025, homebuyers may be more cautious and hesitant to enter the market. This could lead to a further slowdown in home sales and potentially a decrease in home prices, as demand decreases and supply remains limited.

In conclusion, the decline in pending home sales reflects the ongoing challenges in the U.S. housing market, with elevated mortgage rates, rising home prices, and a limited supply of homes impacting buyer demand. As mortgage rates remain elevated and volatile, homebuyers may be more cautious, leading to a further slowdown in home sales and potentially a decrease in home prices.