Homebuying in the U.S. slowed down in the final month of 2021.

Pending home sales, a leading indicator of the health of the housing market, fell for the second straight month in December and was far slower than economists anticipated. The National Association of Realtors’ (NAR) Pending Home Sales Index, which tracks the number of homes that are under contract to be sold, dropped 3.8% in December from November and declined 6.9% from the same month a year. Activity was down across all regions in the U.S. Analysts expected a 0.4% decrease in sales from a month earlier and a 4% drop from the same month a year ago, according to Bloomberg consensus estimates.

“Pending home sales faded toward the end of 2021, as a diminished housing supply offered consumers very few options,” said Lawrence Yun, NAR’s chief economist, in a press statement. “Mortgage rates have climbed steadily the last several weeks, which unfortunately will ultimately push aside marginal buyers.”

Last week, rates for the most common mortgage (the 30-year fixed) rose to 3.56% from 3.45% — the highest rate since March 2020 — according to Freddie Mac. The latest read Thursday morning shows 30-year mortgage rates are flat at 3.55%. Yun forecasts the 30-year fixed mortgage rate to jump to 3.9% by the fourth quarter of this year.

“The market will likely endure a minor reduction in sales as mortgage rates continue to edge higher,” he added.

Total housing inventory at the end of December was 910,000 units, down 18.0% from November and down 14.2% from one year ago — the lowest level since 1999, when NAR started tracking inventory for all housing types (NAR started tracking single family home inventory in 1982). Unsold inventory sits at a 1.8-month supply at the present sales pace, down from 2.1 months in November and from 1.9 months in December 2020.

"Contract signings declined again in December, as buyers faced the all-time lowest inventory of unsold homes. At the close of 2021, U.S. housing activity remained unseasonably competitive, as buyers bid for a smaller number of homes for sale. In addition, with winter holidays and colder weather encouraging people to take a break from the market, many homeowners postponed plans to list, leading to further declines in new inventory and pushing listing prices 10% higher than in December 2020,” said George Ratiu, manager of economic research at Realtor.com, in a statement prior to the results.

Latest homebuilding data point to some relief. According to the Commerce Department, housing starts rose 1.4% to a seasonally adjusted annual rate of 1.702 million units last month — the highest level since March.