NAR Pending Home Sales: December Contracts Drop 9.3% as Low Inventory Cools Buyer Activity

INVESTOR SUMMARY

• December’s 9.3% monthly decline in pending home sales highlights how constrained inventories and still elevated borrowing costs continue to pressure existing home demand, despite some easing in mortgage rates.
• The pullback suggests that housing activity is being held back more by lack of supply than by underlying household demand, with important implications for housing linked sectors and rate sensitive assets.

Data Highlights and Analysis

The NAR Pending Home Sales Index fell 9.3% from November to December, dropping to 71.8 and reaching its lowest level since midsummer, while contract signings were 3.0% below their level a year earlier. All four major regions posted monthly declines: the Midwest fell 14.9%, the West 13.3%, the Northeast 11.0%, and the South 4.0%, with only the South recording a modest 2.0% year over year gain as the other regions showed annual drops.

NAR emphasized that closing activity improved in December but new listings did not keep pace, leaving inventory at roughly 1.18 million homes for sale, matching the lowest level seen in 2025 and underscoring supply as the primary constraint on sales. Many potential buyers remain reluctant to commit without more options, and with mortgage rates still near the 6% range, the combination of limited choice and reduced affordability continues to suppress transaction volumes relative to pre pandemic norms.

Market and Investment Implications

A weak pending sales reading typically foreshadows softer existing home closing volumes in subsequent months, which can weigh on brokerage activity, title and mortgage origination businesses, and certain home related retailers, even as some homebuilders may benefit from buyers shifting toward new construction where inventory is more readily available. 

Regionally, deeper pullbacks in the Midwest and West compared with the more resilient South highlight ongoing divergence across local markets, an important consideration for investors with exposure to regional banks, REITs, or homebuilders concentrated in specific geographies.

For macro focused investors, December’s decline reinforces the narrative of a drawn out, uneven housing recovery rather than a rapid rebound, implying a more modest contribution from residential real estate to overall economic growth in early 2026. This backdrop keeps attention on how long a higher for longer rate environment and tight inventory conditions will constrain turnover, while also shaping expectations for related sectors such as building materials, furnishings, and home improvement spending.

Strategic Considerations and Outlook

Advisors may wish to track the interplay between mortgage rate trends and listing activity, as further rate relief without a meaningful increase in inventory could mean that affordability improves but transaction volumes remain subdued. 

Persistent regional differences argue for careful evaluation of geographic concentration in housing sensitive holdings, given that comparatively better year over year contract activity in the South may lead to different performance dynamics than in supply constrained or softer markets in the Northeast, Midwest, and West.

Looking ahead, key risks include the potential for further inventory tightening, renewed rate volatility stemming from inflation or policy surprises, and shifts in consumer confidence that could either unlock pent up demand or deepen the slowdown in contract activity. How these forces evolve will help determine the pace at which housing contributes to or detracts from broader economic momentum through 2026.

Looking Ahead

Later this week, personal income, consumer spending, and PCE inflation data will provide an important read on real income growth, consumption trends, and the Fed’s preferred inflation gauge. Weekly initial jobless claims will offer a timely snapshot of labor market conditions, while the final January University of Michigan consumer sentiment index and S&P Global flash PMIs will update views on household confidence and business activity, rounding out the macro backdrop for housing and other rate sensitive segments.

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Source: National Association of Realtors