Pending home sales were down again in December, falling below the Pending Home Sale Index's (PHSI's) benchmark 100 level to 99.0.  The index was at 101.2 in November.  The 2.2 percent month-over-month decline follows losses of 0.7 percent and 2.6 percent in the previous two months.  The National Association of Realtors® (NAR) said its index is down 9.8 percent from its level in December 2017, marking the 12^th straight month of annual decreases.

The PHSI is a forward-looking indicator based on signed contracts for existing home purchases. Pending sales are expected to translate into closed transactions within one to two months.

Analysts polled by Econoday had expected the PHSI to gain 0.3 percent.  Individual forecasts ranged from -0.4 percent to 0.4 percent.

Lawrence Yun, NAR chief economist, cited several reasons for the decline in pending sales. "The stock market correction hurt consumer confidence, record high home prices cut into affordability and mortgage rates were higher in October and November for consumers signing contracts in December," he said.

Yun says so far, the partial government shutdown has not caused any obvious damage to home sales. "Seventy-five percent of Realtors^® reported that they haven't yet felt the impact of the government closure. However, if another government shutdown takes place, it will lead to fewer homes sold," he said.

Yun added that once the government gets back on track there will be more mortgage options available for consumers. "Some home transactions were delayed, but we now expect those sales to go forward," he said.

The inventory picture is a bit brighter, at least in some areas. Yun cited year-over-year increases in active listings in the Denver, Seattle, San Francisco, San Diego and Portland, Oregon metro areas. The increase in Portland was the largest in the nation.

Yun says despite the low home sales in December, he is confident that the housing market will see improvement in 2019. "The longer-term growth potential is high. The Federal Reserve announced a change in its stance on monetary policy. Rather than four rate hikes, there will likely be only one increase or even no increase at all. This has already spurred a noticeable fall in the 30-year, fixed-rate for mortgages. As a result, the forecast for home transactions has greatly improved."

Even though December pending sales were down for the nation as a whole, both the Northeast and the West managed increases.  However, all four regions are running behind their December 2017 levels, with the South sustaining the largest decrease.

The PHSI in the Northeast rose 2.0 percent to 93.2 and is now 2.5 percent below a year ago. In the Midwest, the index fell 0.6 percent to 97.5, 7.2 percent lower on an annual basis.  

Pending home sales in the South fell 5 percent to an index of 109.7 putting it down 13.5 percent compared to December 2017. The index in the West increased 1.7 percent in December to 88.4, its second consecutive monthly gain, but fell 10.8 percent below a year ago. 

The PHSI is based on a large national sample, typically representing about 20 percent of transactions for existing-home sales. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.