Pending home sales, which measure signed contracts, not closings, dropped 4.9% in December compared with November, as the supply of homes hit a record low during the month.
Sales were projected to rise 1% month to month.
December is historically the slowest month of the year in the housing market. Despite the month-to-month drop, though, 2019 ended up slightly stronger than the year before. Pending home sales were 4.6% higher last month than in December 2018, according to the National Association of Realtors.
Regionally, pending sales in the Northeast fell 4% for the month and were 0.1% lower than a year ago. In the Midwest, sales dropped 3.6% monthly but were 1.3% higher annually. Pending home sales in the South decreased 5.5% monthly but were 7.4% stronger compared with a year ago. Pending sales in the West fell 5.4% monthly but were up 7% annually.
Buyers were likely buoyed by low mortgage rates. The average rate on the 30-year fixed mortgage hovered around 3.75% in December, a full percentage point lower than the rate in December 2018. Home price gains accelerated last fall, after easing for much of the year, but lower mortgage rates helped to offset that increase.
But supply remains an issue. The inventory of homes for sale fell to its lowest level on record in December. Supplies are leanest on the low end, where demand is strongest. That is likely to persist through 2020.
"Due to the shortage of affordable homes, home sales growth will only rise by around 3%," predicted Lawrence Yun, chief economist for the Realtors. "Still, national median home price growth is in no danger of falling due to inventory shortages and will rise by 4%."
Yun noted that the new home construction market looks promising. Housing starts and new home sales are set to rise 6% and 10%, respectively. Both D.R. Horton and Pulte Group showed strong growth in entry-level home sales as they reported quarterly earnings this week.
"The state of housing in 2020 will depend on whether home builders bring more affordable homes to the market," added Yun. "Home prices and even rents are increasing too rapidly, and more inventory would help correct the problem and slow price gains."