Existing Home Sales fell 1.5% from November to December to a 4.02 million unit annualized pace, per the National Association of Realtors (NAR). However, this was a smaller decline than economists had forecasted. Sales were also 34% lower when compared to December of last year. This is a critical report for taking the pulse of the housing market, as it measures closings on existing homes, which represent around 90% of the market.

What’s the bottom line? Inventory continued to move lower after peaking over the summer as part of the normal seasonal build, falling for the fifth straight month to 970,000. This is a 13.4% decline from November and the equivalent of a 2.9 months’ supply.

But inventory is even tighter than that figure implies, as there were only 690,000 “active listings” in December, meaning that 29% of the “inventory” in the Existing Home Sales report is under contract and not truly available. This data speaks to ongoing demand for homes, even with the decline in sales, as a normal market has 25% of inventory under contract.

Demand can also be seen in the pace of sales, as homes are still selling quickly when priced correctly. Average days on the market increased slightly from 24 days in November to 26 days in December, while 57% of homes sold last month were on the market for less than a month.

Looking at the data as a whole, low inventory and ongoing housing demand will continue to limit the downside in home prices.