Pending home sales drop 1.2%, marking the fifth consecutive month of declines
Consistent declines: March sees fifth month of pending home sales sag
It was another down month for pending home sales. Contract activity in March was down from February in three of the four regions, according to the National Association of Realtors® (NAR). Comparing the month to March of 2021 saw decreases among all four regions.
Month-over-month, the Pending Home Sales Index (PHSI) was 103.7, down 1.2% nationwide. It fell a more precipitous 8.2% from last year. An index of 100 is equal to the level of pending home sale activity in 2011. Only the Northeast posted positive signings from February.
- Northeast: up 4.0% to an index of 89.3—9.2% lower than last year
- Midwest: down 6.1% to 94.7—4.8% lower than last year
- South: down 0.9% to 125.8—9.5% lower than last year
- West: down 0.2% to 89.8—8.4% lower than last year
But there is some good news to take from the falling numbers.
"The falling contract signings are implying that multiple offers will soon dissipate and be replaced by much calmer and normalized market conditions," said Lawrence Yun, NAR's chief economist. "As it stands, the sudden large gains in mortgage rates have reduced the pool of eligible homebuyers, and that has consequently lowered buying activity.”
Looking ahead to rising indicators
Rising mortgage rates, rising home prices and inflation are forcing some buyers out of the market as their monthly budget numbers don’t add up at this time. Yun sees all of those numbers to increase throughout the year:
- 30-year fixed mortgage rates: increase to 5.3% in the fourth quarter, hitting 5.4% in 2023
- Inflation: average 8.2% on the year, but dropping to 5.5% in the second half of the year
- Median home price: up 8% from last year
"Overall existing-home sales this year look to be down 9% from the heated pace of last year," said Yun. "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."
Renters getting squeezed
Some potential buyers are considering sitting out this market, waiting for mortgage rates and home prices to fall. But rising rents, driven by a limited supply of available apartments, are making that a difficulty. It’s squeezing folks who were ready to buy when rates were low, but now find that they can’t.
"Fast-rising rents will encourage renters to consider buying a home, though higher mortgage rates will present challenges," Yun said.
This is encouraging builders to start work on more multifamily units to take advantage of potentially higher rent income, which is good news for the low housing supply. But this is offset by rising mortgage rates that are slowing builders’ desire to construct new single-family homes.
"Strong rent growth … will lead to a boom in multifamily housing starts, with more than 20% growth this year," says Yun. However, on the single-family side: "I expect (rising rates) to result in a boost to construction of less than 5%," lower than many are hoping for.
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