Pending home sales fell a very steep 3.7% in December, according to the National Association of Realtors.

All major regions experienced declines in December and this was the second worst monthly drop since May 2010.

The decline was not expected and well below analyst expectations.

Final sales of existing homes did pop higher in last week's report for December but amid a still flat trend. Today's pending sales report doesn't point to any improvement, which is a bit of a mystery given how low mortgage rates are and how strong the job market is. 

The Pending Home Sales Index, a forward-looking indicator based on contract signings, decreased 3.7% to 100.7 in December from a slightly downwardly revised 104.6 in November but is 6.1% above December 2013 (94.9).

Lawrence Yun, NAR chief economist, says fewer homes available for sale and a slight acceleration in prices likely led to December’s decline in contract signings.

“Total inventory fell in December for the first time in 16 months, resulting in fewer choices for buyers and a modest uptick in price growth in markets throughout the country,” he said. “With interest rates at lows not seen since early 2013, the strength in existing-sales in upcoming months will largely depend on the willingness of current homeowners to realize their equity gains from the past couple years and trade up.

 “More jobs, increasing consumer confidence, less expensive mortgage insurance and new low down payment programs coming into the marketplace will likely lead to more demand from first-time buyers,” he said.

The PHSI in the Northeast experienced the largest decline, dropping 7.5% to 82.1 in December, but is still 6.3% above a year ago.

In the Midwest the index decreased 2.8% to 97.1in December, but is 1.9% above December 2013. 

Pending home sales in the South declined 2.6% to an index of 116.6 in December, but are 8.6% above last December. The index in the West fell 4.6% in December to 94.0, but is 6.3% above a year ago. 

Total existing-homes sales in 2015 are forecast to be around 5.26 million, an increase of 6.6% from 2014. The national median existing-home price for all of this year is expected to increase between 4 and 5%. In 2014, existing-home sales declined 3.1% and prices rose 5.8%.