Buyers returned to the market for existing homes in December, despite a sharp rise in mortgage rates following the presidential election.
A monthly survey of signed contracts, so-called "pending" home sales, rose 1.6 percent compared to November and eked out a tiny 0.3 percent gain compared to December of 2015, according to the National Association of Realtors.
Activity was mixed throughout the nation, though, with activity strongest in the South and West but weaker elsewhere. Supply is also playing a key role, as sales continue to be strongest on the higher end of the market, where listings are more abundant. Sales were up about 10 percent year-over-year in December for homes sold at or above $250,000, but homes sold between $100,000 and $250,000 only increased 2.3 percent. Sales of homes under $100,000 were down 11.6 percent compared to a year ago.
"Pending sales rebounded last month as enough buyers fended off rising mortgage rates and alarmingly low inventory levels to sign a contract," said Lawrence Yun, chief economist for the NAR. "The main storyline in the early months of 2017 will be if supply can meaningfully increase to keep price growth at a moderate enough level for households to absorb higher borrowing costs. Sales will struggle to build on last year's strong pace if inventory conditions don't improve."
Pending home sales in the Northeast declined 1.6 percent in December monthly and were 1.2 percent below a year ago. In the Midwest, sales fell 0.8 percent for the month and were 3.4 percent lower than December 2015. In the South they rose 2.4 percent monthly and 0.5 percent annually, while in the West they jumped 5.0 percent monthly and were also 5.0 percent higher than a year ago.
"The dismal number of listings in the affordable price range is squeezing prospective first-time buyers the most," said Yun. "As a result, young households are missing out on the wealth gains most homeowners have accrued from the 41 percent cumulative rise in existing home prices since 2011."
Mortgage rates rose more than half a percentage point following the election, sitting at their most recent highs during much of December. While they retrenched slightly over the new year, rates began rising again last week. Economic data out this week, including the monthly employment report, could move rates decisively again in either direction.
A report measuring signed contracts to buy newly built homes dropped a steep 10 percent in December. New construction is more expensive to comparable existing homes, so higher rates likely played into that pullback in sales more than in the existing home market.