Key Themes and Findings:A. Pending Home Sales Decline:After four months of gains, pending home sales experienced a setback in December 2024, decreasing by 5.5% month-over-month and 5% year-over-year. This decline is a significant reversal and is described as “not welcome news” for the industry.Quote: "After four straight months of gains in contract signings, one step back is not welcome news, but it is not entirely surprising. Economic data never moves in a straight line." - Lawrence Yun, NAR Chief EconomistAll four U.S. regions saw declines, with the West experiencing the most significant drop (10.3% month-over-month) followed by the Midwest (8.1%). The South (down 2.7%) and Midwest (down 4.9%) saw less dramatic drops.This is partly attributed to reduced affordability in higher-priced areas due to elevated mortgage rates.Quote: "Contract activity fell more sharply in the high-priced regions of the Northeast and West, where elevated mortgage rates have appreciably cut affordability." - Lawrence Yun, NAR Chief Economist.The Pending Home Sales Index (PHSI) dropped to 74.2 in December, with an index of 100 representing the 2001 contract activity level. The lowest point of 2024 was in July at 70.2Quote: "The Pending Home Sales Index (PHSI)* – a forward-looking indicator of home sales based on contract signings – slid 5.5% to 74.2 in December. Year-over-year, pending transactions declined 5.0%."B. Mortgage Rate Volatility and Affordability:Mortgage rates are hovering around 7%, with the 30-year fixed rate averaging 6.95%.Despite some stabilization, rates have not fallen significantly enough to boost buyer activity.There's no expectation that mortgage rates will change significantly in the coming months, with rates expected to stay within the 6-7% range, creating a sense of stability but also a barrier to entry for some buyers.Quote: "There is no expectation that mortgage rates will change in the coming months. Home buyers who are shopping should know that rates are expected to stay between 6-7%. As there is no expectation of change, stability in mortgage rates provides reassurance."Mortgage applications have decreased, influenced by holiday and inauguration weeks and potentially by a lack of confidence amid economic uncertainty.The Federal Reserve has paused interest rate hikes, holding the target rate at 4.25% - 4.5%. This pause adds uncertainty to the future of mortgage rates.Quote: "The Fed held interest rates as expected, at 4.25% to 4.5%, with the open question of how long this pause would continue. As economic data and the Fed respond to the new administration’s policy announcements, the mortgage market may experience continued volatility."C. Regional Disparities:The West and Northeast regions are experiencing the largest impact of higher mortgage rates on affordability.More affordable regions are seeing job and wage gains potentially having a more positive impact on home sales.The varying impacts underscore the complex nature of local markets that are affected differently by mortgage rates, job growth, and cost of living, and climate.D. Market Shifts and Inventory:There is a growing inventory of unsold homes, with single family homes now fractionally cheaper than the same time last year.New contracts pending are fewer than the previous year.The number of unsold single-family homes on the market is up 26.5% from last year, indicating a shift in market dynamics.Quote: "There are now 637,000 single family homes unsold on the market that's up 7/10 of a percent from last week and is 26.5% more than last year."E. New Construction and Home Sizes:New home sizes, especially in the West, have decreased due to local policies (like tree preservation ordinances) rather than buyer preferences, forcing builders to construct smaller homes.Quote: "Effectively, what's happening is the cities are preserving more trees. They’re preserving larger setbacks. They're shrinking the amount of lot that we can cover with a new house, and the builders, therefore, are being forced into smaller houses."Despite the decrease, buyers generally are looking for the biggest homes they can afford.F. NAR Settlement & Legal Landscape:The final judgment on the NAR commission deal is in place, impacting seller and buyer transactions across the nation, even on non-Realtor MLSs.Quote: "For the avoidance of doubt, this injunction extends to claims arising from or relating to transactions where Settlement Class Members either sold or purchased a home on any multiple listing service nationwide, regardless of affiliation or association with NAR or not, and thus includes, e.g., NWMLS, WPMLS, and REBNY/RLS,"Further lawsuits against brokerages and MLSs continue, with a preliminary settlement reached by eight defendants, indicating ongoing industry-wide legal changes.G. Technology & MLS Innovations:Multiple Listing Services (MLSs) are evolving, with some moving towards allowing non-Realtor access.Quote: "A recent poll by T3 Sixty found ...
