01/29/2015 02:03 EST | Updated 03/31/2015 05:59 EDT

Signed contracts to buy homes slide 3.7 per cent in December, despite lower mortgage rates

WASHINGTON - Fewer Americans signed contracts to buy homes in December, a sign that low mortgage rates have yet to coax more buyers into the market.

The National Association of Realtors said Thursday that its seasonally adjusted pending home sales index fell 3.7 per cent last month to 100.7. The index ended the year below its 2013 average. But the Realtors project sales of existing homes will rebound in 2015 to 5.26 million, a 6.6 per cent increase from last year.

Pending sales are a barometer of future purchases. A one- to two-month lag usually exists between a contract and a completed sale.

Jim O'Sullivan, chief U.S. economist at High Frequency Economics, said that there may have been some volatility due to the seasonal adjustments applied to a winter month when sales normally slow.

"(T)he trend in home sales is probably still up," O'Sullivan said, noting that more people identified "now" as a good time to buy a house in the University of Michigan consumer sentiment survey.

Lacklustre wage growth and rising home prices stifled buying for much of 2014. This caused the share of Americans who own homes to dip to 64 per cent at the end of last year, down from 65.2 per cent a year ago, the Census Bureau reported Thursday.

Still, the affordability pressures should ease in 2015 due to strong job gains in recent months coupled with falling mortgage rates.

Rates for 30-year mortgages averaged 3.66 per cent this week, down from 4.32 per cent a year ago, according to the mortgage firm Freddie Mac. The drop has made it less expensive for buyers to borrow, enabling them to either save on monthly payments or afford larger and more expensive homes.

Strong job growth over the past year should help contribute to income gains and real estate sales.

The unemployment rate has plunged to 5.6 per cent from 6.7 per cent a year ago, as employers added nearly 3 million jobs last year, according to the Labor Department. While average wages have basically kept pace with inflation, the job growth has increased the number Americans with paychecks — which may spur more home sales this year.

Construction firms still expect growth this year, although their enthusiasm has waned slightly. The National Association of Home Builders/Wells Fargo builder sentiment index fell slightly this month to 57, down one point from a revised reading of 58 in December. Despite the decrease, any reading above 50 indicates that more builders view sales conditions as good rather than poor.