The surge in home prices and mortgage rates, along with a shortage of inventory, is putting major pressure on home sales.
The National Association of Realtors’ Pending Home Sales Index fell 1.2% in March, the fifth monthly drop in a row. Pending sales measured for existing homes slid 8.2% from a year earlier.
A sale is pending when the contract has been signed but the transaction hasn’t closed. The sale is usually finalized within one or two months of signing. So pending sales are a good indicator for actual future sales.
"The falling contract signings are implying that multiple offers will soon dissipate and be replaced by much calmer and normalized market conditions," Lawrence Yun, the NAR's chief economist said in a statement.
"As it stands, the sudden large gains in mortgage rates have reduced the pool of eligible homebuyers, and that has consequently lowered buying activity.”
Mismatch Between Aspiration and Reality
The average 30-year fixed mortgage rate rose to 5.11% in the week ended April 21, the highest level in 11 years, according to housing agency Freddie Mac.
And home prices soared 19.8% in the 12 months through February, according to the Case-Shiller Home Price Index. That’s the third biggest increase since the statistics began 35 years ago.
"The aspiration to purchase a home remains, but the financial capacity has become a major limiting factor," Yun said.
As of March 2022, higher mortgage rates and sustained price appreciation have led to a year-over-year increase of 31% in mortgage payments, according to the NAR.
In addition, the inventory of unsold existing homes totaled only two months at the March sales pace as of March 31, according to the NAR.
Yun expects the 30-year fixed mortgage rate to reach 5.3% by the fourth quarter and 5.4% by 2023.
Existing-Home Sales Seen Falling
"Overall existing-home sales this year look to be down 9% from the heated pace of last year," Yun said. "Home prices are in no danger of decline on a nationwide basis, but the price gains will steadily decelerate such that the median home price in 2022 will likely be up 8% from last year."
Rising mortgage rates will make single-family-home builders cautious, despite tight inventories, Yun said. He expects home construction to climb less than 5% in 2022. Meanwhile galloping rents “will lead to a boom in multifamily housing starts, with more than 20% growth this year,” he said.
In other housing news, mortgage applications dropped 8.3% in the week ended April 22 from a week earlier, hitting the lowest level in more than three years, according to the Mortgage Bankers Association (MBA).
“With mortgage rates increasing last week to the highest level since 2009, applications continued to decline,” MBA economist Joel Klein said in a statement.
