The number of pending home sales increased in December for the first time in seven months, a result of falling mortgage rates as inflation continues to subside.
The National Association of Realtors (NAR) said in a release Friday that its pending home sales index, which measures expected future home sales based on contract signings, increased by 2.5 percent to 76.9. An index score of 100 is equivalent to the average level of contract activity in 2001, which was the first year NAR analyzed.
The amount of existing home sales in 2001 fell between 5 million and 5.5 million, which is considered normal for the current U.S. population, by coincidence.
“This recent low point in home sales activity is likely over,” NAR Chief Economist Lawrence Yun said. “Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market.”
Year-to-year pending transactions still dropped by 33.8 percent, and all four U.S. regions saw year-over-year declines. But the South and the West had monthly increases during December, rising 6.1 percent to 94.1 and 6.4 percent to 58.6, respectively.
The Northeast and the Midwest both recorded decreases last month. The Northeast fell 6.5 percent to 64.7, while the Midwest dropped 0.3 percent to 77.6.
Yun said the “new normal” for mortgage rates will likely stay between 5.5 and 6.5 percent.
“Job gains will steadily become important in driving local home-sales markets,” he said. “The South, in particular, is set to outperform the rest of the country, thanks primarily to better job market conditions in this part of the country compared to other regions.”
The release states that pending contracts are “good indicators” of upcoming sale closings, but the amount of time between when a contract is signed and when a sale closes varies by sale. Differences in the amount of time the process takes can depend on several factors, including struggles to obtain mortgage financing, home inspection problems or appraisal issues.
The data comes as inflation in general is continuing to drop following aggressive moves by the Federal Reserve to raise interest rates over the last year.
The personal consumption expenditures price index, which is the Fed’s preferred measure of inflation, dropped from a 5.5-percent annual inflation rate in November to a 5 percent rate in December. The Fed will likely raise interest rates again next week by a comparatively small amount in relation to its most recent hikes.