Chief Economist Yun blames rising mortgage rates, saying the market will stabilize if “mortgage rates moderate and the economy continues adding jobs.”
WASHINGTON – Pending home sales sagged for the third straight month in August, according to the National Association of Realtors® (NAR). Three out of four major regions NAR includes within the survey saw month-over-month decreases in transactions, with the West showing a modest gain.
Year-over-year, all four regions posted double-digit declines.
The Pending Home Sales Index (PHSI) – a forward-looking indicator of home sales based on contract signings – fell 2.0% to 88.4 in August. Year-over-year, pending transactions dwindled by 24.2%. An index of 100 is equal to the level of contract activity in 2001.
“The direction of mortgage rates – upward or downward – is the prime mover for home buying, and decade-high rates have deeply cut into contract signings,” says NAR Chief Economist Lawrence Yun. “If mortgage rates moderate and the economy continues adding jobs, then home buying should also stabilize.”
Yun expects the economy to remain sluggish throughout the remainder of this year, with mortgage rates rising to the 7% range over the coming months.
“Only when inflation calms down will we see mortgage rates begin to steady,” says Yun.
As a result of the current interest rate environment and weaker economic activity, NAR expects existing-home sales to decline 15.2% in 2022, to 5.19 million units, while new home sales are projected to fall by 20.9%.
Yun notes that limited housing inventory and almost non-existent distressed property sales have supported home prices, however, even when total housing sales fall. Overall, he forecasts prices will rise by 9.6% in 2022.
In 2023, Yun foresees slower price appreciation and corresponding increases in sales as the year progresses.
“Next year, the annual median home price is expected to rise by only 1.2%,” Yun says. “Home sales will pick up in the second half of 2023, but will be down by 7.1% overall.”
Pending home sales regional breakdown:
- The Northeast PHSI decreased 3.4% from last month to 76.6, down 19.0% from August 2021
- The Midwest index fell 5.2% to 88.4 in August, a 21.1% drop from the previous year
- The South PHSI slid 0.9% to 105.4 in August, a decline of 24.2% from a year ago
- The West index rose by 1.4% in August to 71.0, down 31.3% from August 2021
“Home prices are the least affordable in the West and, consequently, the region suffered deeper annual declines in contract signings due to rising interest rates when compared to other areas of the country,” Yun says. “However, the recent increases of the last two months, though small, are encouraging.”
An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.
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