New housing data released this week offers hope that the market slowdown may be short lived. Pending home sales rose 2.5% in December, ending a six-month slide, the National Association of REALTORS® reported Friday. New-home sales also rose 2.3% last month, according to the Commerce Department, and mortgage applications for home purchases are on the rise, coinciding with a continuing drop in mortgage rates. The 30-year fixed-rate mortgage fell to 6.13% this week, Freddie Mac reports.
“The recent low point in home sales activity is likely over,” says NAR Chief Economist Lawrence Yun. “Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market.”
December marked the first time since last May that pending sales posted an increase, according to NAR’s Pending Home Sales Index, a forward-looking indicator of home sales based on contract signings. That said, contract signings are still down nearly 34% compared to a year earlier.
The housing market has been retreating from recent highs after home buyers flooded the market shortly after the pandemic began. Last fall, many markets started to see sales slow as mortgage rates surged to a peak of 7.08% in mid-November—more than double what rates were a year earlier—which added hundreds of dollars per month to mortgage payments.
“The new normal for mortgage rates will likely be in the 5.5% to 6.5% range,” Yun says. “Job gains will steadily become important in driving local markets. 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 new-home market is also seeing progress, even as higher construction costs continue to hinder housing affordability. “Builder incentives and declining mortgage rates during the month of December helped push new-home sales up for the month,” says Jerry Konter, chairman of the National Association of Home Builders.
But builders are still facing headwinds, and they are predicting a choppy few months ahead in sales. “Because of higher construction costs and decreasing affordability, sales are down more than 25% compared to a year ago,” Konter says. The new-home market has been facing elevated inventories as builders wait for more home buyers to return.