Pending home sales rose 8.3% in December as mortgage rates softened
Pending home sales increased 8.3% in December as home buyers benefited from softer mortgage rates, the National Association of Realtors said Friday, providing yet another sign of a strong economy going into 2024.
The NAR’s pending home sales index tracks housing market activity based on signed contracts for single-family homes, condos and co-ops. The index increased to 77.3 in December compared to 71.4 the month before, according to NAR – a reading of 100 roughly equals housing market activity in 2001.
The stronger buying activity was driven by gains in the Midwest, South and West, while the Northeast declined compared to the prior year.
“The housing market is off to a good start this year, as consumers benefit from falling mortgage rates and stable home prices,” NAR chief economist Lawrence Yun said in a news release.
The housing market has experienced a dramatic slowdown over the past two years as the Federal Reserve has raised interest rates, part of a plan to get inflation under control. The higher borrowing costs made it more expensive or home buyers to finance homes using mortgages, slowing the upward march of home prices while shutting many first-time buyers out of the market.
But mortgage rates have drifted downward in recent months, providing home buyers some relief. The average interest rate on a 30-year fixed mortgage stood at 6.69% as of Thursday, according to Freddie Mac, down from the October high of 7.79%. Rates are still more than double their 2021 lows.
Yun added that the market should get a boost in 2024 if mortgage rates continue to fall, with the Federal Reserve expected to cut its own benchmark rate four times this year. Those expectations were buoyed by new inflation data out Friday, which showed the Fed’s preferred inflation gauge at 2.9% in December, excluding food and energy. Total goods prices fell 0.2% from a month ago, while rent rose 0.4% month-over-month – reflecting the slowest gain since 2021, according to LPL Financial chief economist Jeffrey Roach.
Yun, the NAR economist, says he expects rent prices to further stabilize over the next year because of recent growth in apartment construction, something that should further slow inflation.