Against expectations of a 0.6% rise, pending home sales in January plunged 2.8% MoM - the biggest drop since May.
The West - the most expensive region - saw the biggest decline, down 10.3% MoM with The Midwest also tumbling 5.2% MoM.
As mortgage rates have soared since the election (and mortgage applications tumbled), affordability has become a major issue according to NAR with pending home sales at the lowest in a year.
And it's going to get a lot worse...
Lawrence Yun, NAR chief economist, says home shoppers in January faced numerous obstacles in their quest to buy a home.
"The significant shortage of listings last month along with deteriorating affordability as the result of higher home prices and mortgage rates kept many would-be buyers at bay," he said.
"Buyer traffic is easily outpacing seller traffic in several metro areas and is why homes are selling at a much faster rate than a year ago. Most notably in the West, it's not uncommon to see a home come off the market within a month."
According to Yun, interest in buying a home is the highest it has been since the Great Recession. Households are feeling more confident about their financial situation, job growth is strong in most of the country and the stock market has seen record gains in recent months. While these factors bode favorably for increased sales in coming months, buyers are dealing with challenging supply shortages that continue to run up prices in many areas.
"January's accelerated price appreciation is concerning because it's over double the pace of income growth and mortgage rates are up considerably from six months ago," said Yun. "Especially in the most expensive markets, prospective buyers will feel this squeeze to their budget and will likely have to come up with additional savings or compromise on home size or location."