Pending home sales unexpectedly dropped in December as housing shortage has offset the benefit of lower mortgage rates.

The Pending Home Sales Index (PHSI), reported by the National Association of Realtors (NAR), is a forward-looking indicator based on signed contracts. The PHSI fell 4.9% from 108.5 in November to 103.2 in December, the lowest reading since March 2019. However, sales were still 4.6% higher than a year ago.

Regionally, all four major regions saw a decline in the PHSI from last month, ranging from 3.6% in the Midwest to 5.5% in the South. Year-over-year, the PHSI grew in all four regions except for the Northeast, ranging from 1.3% in the Midwest to 7.4% in the South. PHSI in the Northeast slightly fell 0.1% compared to one year ago.

Though low mortgage rates and steady job growth show promising signs for the housing market, the growth will depend on whether home builders bring more affordable homes to the market, according to the NAR. More inventory will help to prevent prices rising too fast and make homeownership more accessible.

Tags: inventory, mortgage rates, NAR, pending home sales