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The numbers: U.S. pending home sales shot up in December as falling mortgage rates brought buyers back into the market.
Pending home sales rose 8.3% in December from the previous month, according to the monthly index released Friday by the National Association of Realtors.
Pending home sales reflect transactions where the contract has been signed for a the sale of an existing home, but the sale has not yet closed. Economists view it as an indicator of the direction of existing-home sales in subsequent months.
The jump in pending-home sales was the largest since June 2020, when it rose by 14.9%.
The sales pace exceeded expectations on Wall Street. Economists were expecting pending home sales to increase by 2% in December.
Transactions were up 1.3% from last year.
The NAR also released an updated forecast for existing-home sales on Friday. The group expects existing-home sales to increase in 2024 by 13% from last year, to a 4.62 million pace.
They expect the U.S. Federal Reserve to cut interest rates four times in 2024 and the 30-year mortgage to “bounce along” in the 6% to 7% range for most of the year.
Big picture: The increases in contract signings and in mortgage applications, reported earlier in the week, indicate that there is pent-up demand from buyers who are motivated by falling mortgage rates.
But the housing market’s recovery is still limited by supply. Unless the so-called lock-in effect fades and more homeowners decide to sell their homes, sales will not be able to increase significantly.
What the realtors said: “The housing market is off to a good start this year, as consumers benefit from falling mortgage rates and stable home prices,” Lawrence Yun, chief economist at the NAR, said in a statement.
“Job additions and income growth will further help with housing affordability, but increased supply will be essential to satisfying all potential demand,” he added.
Market reaction: Stocks were up in early trading on Friday. The yield on the 10-year Treasury note rose above 4.1%.
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