NAR Pending Home Sales Report Shows 9.3% Decrease in December

Pending home sales dropped 9.3% month-over-month and 3.0% year-over-year in December 2025, with all four U.S. regions down m/m (notably the Midwest -14.9% and West -13.3%) and only the South showing a y/y gain (+2.0%), according to the NAR Pending Home Sales Report. Inventory tightened to 1.18 million units (matching 2025 lows) and the REALTORS® Confidence Index shows median days on market rose to 39 and modestly improved near-term expectations for buyer/seller traffic; NAR economists characterize the decline as a potentially seasonal blip but caution it could signal further softening, a near-term negative datapoint for housing-exposed assets and regional markets.

Analysis

Market structure: The sharp 9.3% MoM drop (–3.0% YoY) in pending contracts compresses near-term revenue visibility for homebuilders and mortgage originators — expect closed sales to lag by ~1–2 months, implying potential revenue headwinds for builders (DHI, LEN, PHM) and originators (RKT) in Q1–Q2 2026. Low inventory (1.18M) cushions price downside regionally, so pricing power will bifurcate: sellers in supply-constrained metros (Sun Belt) retain strength while Midwest/Northeast/West listings face weaker turnover.

Risk assessment: Tail risks include a faster-than-expected rate rebound (10y >4.0% within 3 months) that would freeze mortgage demand and trigger a cascade of appraisal/backout issues, and regulatory shocks (tightening of GSE underwriting) that could halve originations in a stress scenario. Short-term (days-weeks) volatility will center on pending-sales prints and 10y moves; medium-term (3–6 months) outcomes hinge on inventory trends and Fed policy, and long-term (12+ months) depends on housing supply additions and demographic-driven rental demand.

Trade implications: Favor long exposure to rental REITs and MBS vs short homebuilders and originators. Mechanically: buy single-family-rental names (INVH, AMH) and MBS ETF (MBB) if yields soften, while running defined-risk bearish structures on ITB/XHB and selective long puts on RKT. Regional plays: overweight Sun Belt REITs/RE markets (FL, AZ, TX metros listed) and underweight high-downpayment coastal builders.

Contrarian angles: Consensus focuses on weak contracts = bearish builders, but low inventory implies sustained rent/pricing resilience; if pending sales stabilize or 10y falls <3.50% in 6–12 weeks, builders may re-rate faster than consensus expects. Historical parallels (post-rate plateau episodes) show ~3–6 month rebound in builder stocks after contract troughs; risk is mistiming — use spread trades and duration-sensitive MBS to arbitrage timing risk.

Key Decisions for Investors

• Establish a defined-risk bearish position on homebuilders: buy a 3-month ITB put debit spread sized to risk 1–1.5% of portfolio capital (entry now). Target: 12–18% downside in ITB within 3 months; stop-loss if ITB rises 10% or pending sales improve two consecutive months.
• Implement a pair trade: go long Invitation Homes (INVH) equal notional short D.R. Horton (DHI) for 2% net notional each (long INVH, short DHI). Time horizon 3–6 months; take profit if spread widens (INVH outperforms DHI) by 8–10% or cut if spread compresses 6% adverse.
• Add 2–3% allocation to iShares MBS ETF (MBB) conditional: initiate if 10-year Treasury yield retraces below 3.75% (or after two consecutive months of pending-sales declines), horizon 6–12 months; take profits if 10y >4.00% or MBB rallies +6%.
• Reduce direct exposure to mortgage originators (Rocket Companies RKT) by 50% immediately and hedge remaining exposure with 2–3 month out-of-the-money puts (delta ~0.30) sized to cap downside at ~1% portfolio risk while monitoring pending-sales flow for 30–60 day updates.