Pending Home Sales Dropped 5.5% in December 2024: Regional Data and Market Analysis

Pending home sales in the U.S. fell significantly by 5.5% in December 2024, marking the most substantial monthly decline of the year and interrupting four consecutive months of growth. This drop, reported by the National Association of Realtors® (NAR), was driven by buyers reacting to mortgage rates hovering near 7%. The decrease was consistent across all four major regions, with the West experiencing the most severe monthly contraction. This trend in pending home sales, which represent the initial stage of a transaction after a purchase agreement is signed, is a leading indicator of existing-home sales activity one to two months ahead.

What Caused the Sharp Decline in Pending Home Sales?

The primary driver behind the December sales slump was the upward pressure on mortgage rates. According to Hannah Jones, Senior Economic Research Analyst at the National Association of Realtors®, “Buyers pulled back in response to climbing mortgage rates.” The average 30-year fixed mortgage rate was 6.95% at the end of December, creating affordability challenges for potential homeowners. This resulted in a 5% annual decrease in contract signings, the largest year-over-year drop since July. The market also experienced uncertainty as participants evaluated the potential impact of new federal housing policies, though this was partially offset by seasonal price moderation and high inventory levels.

How Did Each U.S. Region Perform?

The decline was nationwide, but the severity varied significantly by region. The Pending Home Sales Index (PHSI), a metric created by the NAR to measure housing contract activity, fell across the board.

• The West: This region saw the most dramatic monthly decrease, with its PHSI plunging 10.3% from November to 57.7. Year-over-year, the index was down 5.1%.
• The Northeast: The PHSI for the Northeast dropped 8.1% monthly to 52.2 in December. However, the annual decline was more modest at 1.3%.
• The Midwest: While the monthly contraction was 4.9% (to a PHSI of 74.3), the Midwest experienced the largest annual drop of all regions, falling 6.9% compared to December 2023.
• The South: The South saw a more moderate monthly decline of 2.7%, bringing its PHSI to 90.6. Year-over-year, pending sales were down 5.1%.

Is There a Contrast with the New Home Market?

Yes, the market for new construction homes presented a contrasting trend. New-home sales, which are also based on contract signings, increased by 3.6% from November and 6.7% from a year earlier. Jones notes that "affordable new construction remains an attractive option for home shoppers." This suggests that buyers are turning to newly built homes, where inventory is more readily available and often more affordable, as an alternative to the challenging existing-home market.

In conclusion, based on our experience assessment, the December 2024 data highlights a clear sensitivity to mortgage rate fluctuations. For buyers and sellers, the key takeaways are:

• Pending sales are a reliable leading indicator of near-future market activity.
• Regional conditions vary widely, requiring localized strategy.
• The new-home market may offer more opportunities for buyers struggling with existing-home inventory and competition.
• Market stability is influenced by a combination of seasonal factors, inventory levels, and broader economic policy.