US pending home sales unexpectedly drop in December

US pending home sales unexpectedly fell in December, according to the latest figures from the National Association of Realtors.

The NAR's monthly index declined 2.2% to 99.0 last month from 101.2 in November, missing expectations for a 0.5% increase. Meanwhile, year-over-year contract signings fell 9.8%, marking the 12th straight month of annual decreases.

The NAR's chief economist, Lawrence Yun, cited several reasons for the drop.

"The stock market correction hurt consumer confidence, record high home prices cut into affordability and mortgage rates were higher in October and November for consumers signing contracts in December," he said.

Still, Yun said he was confident that the housing market will improve this year. "The longer-term growth potential is high. The Federal Reserve announced a change in its stance on monetary policy. Rather than four rate hikes, there will likely be only one increase or even no increase at all. This has already spurred a noticeable fall in the 30-year, fixed-rate for mortgages. As a result, the forecast for home transactions has greatly improved."

Pending home sales in the Northeast rose 2% to 93.2 in December, while the index for the Midwest fell 0.6% to 97.5. The gauge for the South was down 5% to 109.7 last month, while the pending home sales index for the West was up 1.7% to 88.4.

Ian Shepherdson, chief economist at Pantheon Macroeconomics, said: "This is disappointing, but it does not change our view that the rising trend in mortgage applications, boosted by falling rates, should see home sales turning up sharply in the first quarter.

"Sales in recent months have been much weaker than implied by the path of mortgage applications, probably in large part due to Hurricanes Florence and Michael, the California wildfires and the unusually cold weather in November. The government shutdown likely will constrain the January numbers, but a big rebound is coming, with lower mortgage rates pulling in new buyers. For now, though, the immediate implication of December’s drop in pending home sales is that January existing home sales are likely to drop to about 4.8m, from 4.99m in December, hitting their lowest level since November 2015."