The numbers: U.S. pending home sales shot up in December as falling mortgage rates brought buyers back into the market.
Pending home sales rose 8.3% in December from the previous month, according to the monthly index released Friday by the National Association of Realtors.
Pending home sales reflect transactions where the contract has been signed for the sale of an existing home, but the sale has not yet closed. Economists view it as an indicator of the direction of existing-home sales in subsequent months.
The jump in pending-home sales was the largest since June 2020, when it rose by 14.9%. The sales pace exceeded expectations on Wall Street. Economists were expecting pending home sales to increase by 2% in December. Transactions were up 1.3% from last year.
The NAR also released an updated forecast for existing-home sales on Friday. The group expects existing-home sales to increase in 2024 by 13% from last year, to a 4.62 million pace.
They expect the U.S. Federal Reserve to cut interest rates four times in 2024 and the 30-year mortgage to “bounce along” in the 6% to 7% range for most of the year.
Big picture: The increases in contract signings and in mortgage applications, reported earlier in the week, indicate that there is pent-up demand from buyers who are motivated by falling mortgage rates.
But the housing market’s recovery is still limited by supply. Unless the so-called lock-in effect fades and more homeowners decide to sell their homes, sales will not be able to increase significantly.
What the realtors said: “The housing market is off to a good start this year, as consumers benefit from falling mortgage rates and stable home prices,” Lawrence Yun, chief economist at the NAR, said in a statement.
“Job additions and income growth will further help with housing affordability, but increased supply will be essential to satisfying all potential demand,” he added.