The National Association of Realtors said its seasonally adjusted pending home sales index dropped 8.7 per cent last month to 92.4. That's the seventh straight monthly decline for the index, which previews upcoming sales. A one- to two-month lag usually exists between a signed contract and a completed sale.
Rising mortgage rates and price increases crimped sales in recent months. Cold weather in December also stalled home purchases.
"People are disinclined to go house-hunting in severe weather conditions," said Ian Shepherdson, chief economist at Pantheon Macroeconomics. "We expect something of a rebound in January, but this month's cold weather means it is unlikely all the ground lost will be recovered."
Last month's decline was so steep that it led to a year-over-year drop of 8.8 per cent. The number of signed contracts tumbled in the Northeast, Midwest, South and West in December.
Still, the housing market benefited from historically low mortgage rates for much of 2013.
Sales of previously occupied homes totalled 5.1 million last year, the trade group said last week. That's the highest in seven years, but it's still below the 5.5 million that is consistent with a healthy housing market.
The average interest rate on a 30-year mortgage dropped to 4.32 per cent this week from 4.39 per cent the previous week. Rates surged about 1.25 percentage points from May through September, peaking at 4.6 per cent. That increase occurred after Federal Reserve Chairman Ben Bernanke indicated that the Fed would start to slow its bond-buying program before the end of the year.
The Fed has reduced its monthly bond purchases from $85 billion to $65 billion in its last two policy meetings. The program is intended to push down longer-term interest rates and encourage more borrowing, spending and hiring.