Blame fewer homes for sale as the culprit behind the most recent decrease in contract signings, not lessening demand, a new report from the National Association of REALTORS® suggests.
NAR’s Pending Home Sales Index—a forward-looking indicator of home sales based on contract signings—fell 3.8% in December 2021 compared to November. Contract signings were down 6.9% year-over-year.
“Pending home sales faded toward the end of 2021, as diminished housing supply offered consumers very few options,” says Lawrence Yun, NAR’s chief economist. “Mortgage rates have climbed steadily the last several weeks, which unfortunately will ultimately push aside marginal buyers.”
But despite last month’s slide in contract signings, Yun says 2021 still marked a great year for housing sales and price appreciation.
What’s Ahead for Housing
Buyer demand remains strong, but “the market will likely endure a minor reduction in sales as mortgage rates continue to edge higher,” Yun says.
Yun predicts the 30-year fixed-rate mortgage to climb to 3.9% by the fourth quarter. Rates averaged 3.56% last week, according to Freddie Mac.
Yun does expect housing inventory to continue to grow and lead to slower home price growth in 2022—which could be a welcome sign to home shoppers facing double-digit price appreciation over the past year.
Existing-home sales are forecasted to decline by 2.8% in 2022, and home prices are expected to move higher by 5.1% due to the ongoing housing shortage, Yun says.
“The combination of a more measured demand and rising supply will bring housing prices better in line with wage growth,” Yun adds.
Snapshot by Region
All four major regions of the U.S. posted month-over-month and annual drops in sales contract activity last month.