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Pending home sales increased on a month-over-month basis for the first time since May 2022 in December, according to the National Association of Realtors (NAR). The Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contract signings, improved 2.5% to 76.9 in December. An index reading of 100 is equal to the level of contract activity in 2001. On a year-over-year basis, pending transactions fell by 33.8% in December 2022.

“The recent low point in home sales activity is likely over,” says NAR chief economist Lawrence Yun. “Mortgage rates are the dominant factor driving home sales, and recent declines in rates are clearly helping to stabilize the market.”

On a regional basis, the Northeast PHSI fell 6.5% on a month-over-month basis and 32.5% year over year. The Midwest index marginally fell 0.3% in December compared with the prior month but remains 30.1% lower than December 2021 levels.

The South PHSI increased by 6.1% compared with November but decreased 34.5% on a year-over-year basis. In the West, the PHSI increased 6.4% in December month over month but decreased 37.5% on a year-over-year basis.

“The new normal for mortgage rates will likely be in the 5.5% to 6.5% range,” Yun says. “Job gains will steadily become more important in driving local home-sales markets. The South, in particular, is set to outperform the rest of the country, thanks primarily to better job market conditions in this part of the country compared to other regions.”