Fewer buyers can afford homes at todays prices yet prices arent falling

The U.S. housing market faced a setback in December as pending home sales plunged by 5.5%, following a period of four consecutive months of growth. This decline, reported by the National Association of Realtors, reflects challenges posed by rising mortgage rates and near-record-high prices.
The Pending Home Sales Index (PHSI), a key indicator of housing market activity based on contract signings, fell to 74.2 in December. This marks a 5% decrease compared to the same month last year. The index had previously reached a cyclical low of 70.2 in July 2024. An index level of 100 corresponds to the contract activity seen in 2001.
NAR Chief Economist Lawrence Yun said the December report is not welcome news, but it is not entirely surprising. He noted that high mortgage rates have not significantly dented housing demand due to greater numbers of cash transactions.
The numbers also suggest that the combination of rates and prices has priced out many moderate-income buyers out of the housing market, with investors and upper-income consumers making most of the purchases.
Regional breakdown
All four U.S. regions experienced month-over-month declines in pending home sales, with the West seeing the most significant drop:
- Northeast: The PHSI decreased by 8.1% to 62.3, a 1.3% decline from December 2023.
- Midwest: The index fell by 4.9% to 74.3, marking a 6.9% year-over-year decrease.
- South: The PHSI slipped by 2.7% to 90.6, down 5.1% from the previous year.
- West: The index tumbled 10.3% to 57.7, also a 5.1% decline from December 2023.
Yun noted that contract activity fell more sharply in the high-priced regions of the Northeast and West, where elevated mortgage rates have significantly impacted affordability. He added, "Job gains tend to have greater impact in more affordable regions. It is unclear if heavier-than-usual winter precipitation impacted the timing of purchases."
As the housing market navigates these challenges, the outlook for early 2025 remains uncertain, with economic conditions and mortgage rates continuing to play a pivotal role in shaping homebuying activity.
Photo Credit: Consumer Affairs News Department Images
Posted: 2025-01-31 15:46:24