Housing Market Hits a Speed Bump as Mortgage Rates Take Their Toll
The housing market’s momentum slowed in December, as higher mortgage rates gave potential buyers pause. According to the National Association of Realtors (NAR), the Pending Home Sales Index, which tracks contract signings on existing homes, dropped 5.5% from November to 74.2, ending a four-month streak of gains.
Regional Impact
The decline in contract signings was felt across all regions, with the most expensive areas experiencing the greatest impact. The West saw a 10.3% drop in activity, followed by the Northeast with an 8.1% decline. Compared to the same time last year, contract activity across all regions dropped 5%.
Economic Factors at Play
Lawrence Yun, NAR’s chief economist, noted that while the decline is unwelcome, it’s not entirely surprising. “Economic data never moves in a straight line,” he said. “High mortgage rates have not significantly dented housing demand due to greater numbers of cash transactions.” Despite multiple cuts to benchmark interest rates by the Federal Reserve, mortgage rates rose throughout the fall and ended the year near 7%.
The Perfect Storm
The combination of rising mortgage rates and median home prices hitting a new all-time high contributed to last year being 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. Additionally, homeowners who locked in mortgage rates of around 3% in recent years have been reluctant to move and give up that cheap financing, limiting inventory on the market.
What’s Next?
As the housing market navigates these challenges, it’s clear that the impact of mortgage rates will continue to be felt. With pending home sales serving as a leading indicator of housing market activity, it’s essential to keep a close eye on these trends to understand what’s in store for the future of the housing market.
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