Pending home sales fell 4.3 percent month-over-month in December, according to the latest release from NAR.
This missed expectations for the index to stay flat.
Stocks declined on the news.
Last month's number was revised down to 1.6 percent.
For the year, December pending home sales were up 6.9 percent.
In a press release, NAR chief economist Lawrence Yun said that supply limitation is the biggest obstacle to contract signings in the last month.
"Supplies of homes costing less than $100,000 are tight in much of the country, especially in the West, so first-time buyers have fewer options," he said. "We expect a seasonal rise of inventory in the spring to help, but a seller's market may be developing. Much of the West is already a seller's market for homes priced under a million dollars, but conditions are much more balanced in the Northeast."
A regional breakdown shows that the index was down 5.4 percent in the Northeast, the Midwest index was up 0.9 percent. In the South it was down 4.5 percent, and in the west it tumbled 8.2 percent.
Investors care about the index because it acts as a leading indicator of existing home sales activity. By definition a pending sale refers to one in which a contract was signed but not closed.
Here is a chart showing a change in pending home sales index since 2007:
Watch Below: Trulia CEO Tells Us His Predictions For The Housing Market
More From Business Insider