Rising rates and prices lead to pending home sales fall in June 2022
There were reasons to be optimistic with a slight increase in pending home sales activity in May, but June saw that optimism dashed with an 8.6% drop in activity. Transactions were down in all four regions of the country, with a precipitous drop of 20% from June 2021 according to the National Association of Realtors® (NAR).
- Northeast: down 6.7% to 80.9, down 17.6% from June 2021
- Midwest: down 3.8% to 93.7, down 13.4% from June 2021
- South: down 8.9% to 108.3, down 19.2% from June 2021
- West: down 15.9% to 68.7, down 30.9% from June 2021
The Pending Home Sales Index (PHSI) is a forward-looking indicator of home sales based on contract signings. An index of 100 is equal to the level of contract activity in 2001. In June, the index landed at 91.0, and 8.6% decline from the 99.9 index in May, which had been the first time it had dropped below 100 since the start of the pandemic.
"Contract signings to buy a home will keep tumbling down as long as mortgage rates keep climbing, as has happened this year to date," said NAR Chief Economist Lawrence Yun. "There are indications that mortgage rates may be topping or very close to a cyclical high in July. If so, pending contracts should also begin to stabilize."
Seeing some hope for affordability in the coming months
Affordability remains a major problem, with rising mortgage rates and rising home prices conspiring to drive up the monthly cost of buying and owning a home. According to NAR’s repost, buying a home now is about 80% more expensive than it was in June of 2019, just three years ago. Those numbers would equate to about 25% of the buyers who qualified for a mortgage in the summer of 2019 who would be unable to qualify for a mortgage now.
Despite those dire numbers, Yun does see reasons to be optimistic. Market forces will help stabilize some areas of the housing market, which will lead to a positive change in other areas. "Home sales will be down by 13% in 2022, according to our latest projection. With mortgage rates expected to stabilize near 6% and steady job creation, home sales should start to rise by early 2023."