A home sale sign shows the home as “Under Contract” in Washington, DC, Nov. 19, 2020.

Saul Loeb | AFP | Getty Images

Home buyers signed fewer contracts to buy existing homes in December as record prices and supply hampered strong demand.

The National Association of Realtors’ Pending Home Sales Index fell 0.3% month-to-month, the fourth straight monthly decline. This index is a predictor of future closed sales.

However, outstanding sales were 21.4% higher than December 2019, and that was the highest December value recorded.

“Outstanding home sales contracts have been falling in recent months, but I would attribute that to the fact that there are too few homes for sale,” said Lawrence Yun, chief economist at NAR. “There is a high demand for housing and a large number of potential buyers, so sales should increase with more new offers.”

At the end of December, inventory was just 1.07 million homes for sale, a 23% decrease from a year earlier. At the current sales point, this corresponds to a delivery of 1.9 months. This is the lowest number of homes since realtors began collecting this metric in 1982.

Demand has been uneven across the country, with the largest drop in sales being in the Midwest. Sales there fell 3.6% during the month, but rose 13.9% annually.

In the Northeast, outstanding sales grew 3.1% month on month, up 22.1% year over year. In the south they rose by 0.1% monthly and by 26.6% annually. In the west, sales remained unchanged during the month, increasing 18.9% from December 2019.

“This increased demand, without a significant increase in supply, has spiked property prices and we can expect further upward pressure on prices for the foreseeable future,” said Yun.

The average price of a home sold in December (based on closed sales) was nearly 13% higher than December 2019, and the highest December price ever posted by realtors.

Mortgage rates fell to another record low in December and while this should have given buyers more incentive, low rates are no longer enough to offset record prices. Low prices likely helped boost those prices and added purchasing power to buyers earlier in the year.

New home sales, which are also measured by signed contracts, also fell below expectations and have softened their highs from last summer. The average price for a new home sold during the month was 8% higher than in December 2019.

“While the market remains solid, median home prices are rising due to higher building material costs, especially softwood, and a shift to larger homes,” said Robert Dietz, chief economist for the National Association of Home Builders.