The rate at which contracts were signed to purchase homes was down slightly in December the National Association of Realtors® (NAR) said today.  Even though buyers were looking at the lowest interest rates of the year NAR’s Pending Home Sales Index (PHSI) was down 3.7 percent to 100.7 from the November level of 104.6.  This was the largest decline in the Index since December 2013 when it dropped 5.8 percent.

Despite the monthly number NAR said that the PHSI, a forward-looking indicator of sales, closed out the year 6.1 percent higher than at the same time in 2013, the highest annual gain since it rose 11.7 percent from June 2012 to June 2013.

Lawrence Yun, NAR chief economist, says fewer homes available for sale and a slight acceleration in prices likely led to December’s decline in contract signings. “Total inventory fell in December for the first time in 16 months, resulting in fewer choices for buyers and a modest uptick in price growth in markets throughout the country,” he said. “With interest rates at lows not seen since early 2013, the strength in existing-sales in upcoming months will largely depend on the willingness of current homeowners to realize their equity gains from the past couple years and trade up.”

Adds Yun, “More jobs, increasing consumer confidence, less expensive mortgage insurance and new low down payment programs coming into the marketplace will likely lead to more demand from first-time buyers.”

NAR is projecting total existing home sales in 2015 will be about 5.26 million units, 6.6 percent higher than in 2014.  Sales in 2014 were 3.1 percent lower than in 2013.  NAR’s estimate of median home price increases is 4 to 5 percent.   Prices rose 5.8 percent in 2014.

Pending sales declined in all four regions with the downturn most severe in the Northeast.  The PHSI in that region fell 7.5 percent to 82.1 but remained 6.3 percent higher than a year earlier.  The Midwest dipped 2.8 percent from November to December and is 1.9 percent higher than in December 2013.

Pending home sales in the South declined 2.6 percent to an index of 116.6, 8.6 percent above last December. The index in the West was 94.0, 4.6 percent below the November level and 6.3 percent above a year ago. 

NAR’s Pending Home Sales Index is based on a national sample that typically represents about 20 percent of existing home sale transactions.  The level of monthly sales-contract activity has been found to parallel the level of closed sales over the next two months.  An index of 100 is equal to the average level of activity in 2001, the first year to be examined.