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Lower Mortgage Rates in December Didn’t Translate to More Home Sales

This article was originally published on ETFTrends.com.

Mortgage rates declined near the end of 2018, but that didn't necessarily translate to more home sales, according to data from the National Association of Realtors (NAR).

There were 2.2 percent fewer purchase contracts for existing homes in December, which serves as an indicator for future closings in the next one to two months. Furthermore, the NAR's pending home sale index dropped 9.8 percent compared to a year ago.

"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," said NAR chief economist, Lawrence Yun.

One possible reason for the drop could have been the government shutdown, which was a 35-day long affair. However, Yun said agents were not materially affected by the impact, but another shutdown could tell a different story.

"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," added Yun.

Real Estate ETF Ignores News

The Vanguard Real Estate ETF (VNQ) rose 1 percent despite the negative news.VNQ is trading above its 200-day moving average and is up 10.6 percent year-to-date.

Despite the mostly negative news coming from the real estate sector, VNQ has been tracking higher than the S&P 500 YTD.

Lower Mortgage Rates in December Don't Translate to Higher Home Sales 1

Last month, the National Association of Home Builders/Wells Fargo Housing Market Index hit a three-year low. A combination of rising interest rates and low home affordability dented the housing market for much of 2018.

However, builder confidence rebounded as the index went up to 58 in January compared to the 56 reading in December. Furthermore, the central bank has been sounding increasingly dovish as of late, which could mean that less rate hikes than anticipated for 2019–something that could help give the sector a much-needed boost.

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