Pending home sales drop 7.1% nationwide, reflecting difficult mortgage rate environment
Pending home sales reversed course from two months of slight positive gains by droping a substantial 7.1% in August, according to numbers released by the National Association of Realtors® (NAR). Contract activity was down in all four regions, and year-over-year numbers were down 18.7%.
August was a difficult month for home sales as mortgage rates responded to economic news by rising higher. "Mortgage rates have been rising above 7% since August, which has diminished the pool of home buyers," said Lawrence Yun, NAR chief economist. "Some would-be home buyers are taking a pause and readjusting their expectations about the location and type of home to better fit their budgets."
These numbers are compiled using NAR’s Pending Home Sales Index, a forward-looking measure of sales based on contract signings. An index of 100 equates to the level of activity in 2001, and August’s nationwide index dropped to 71.8, a 7.1% decrease from July. Here’s a look at each region:
- Northeast: down 0.9% to 62.2, down 18.2% from August 2022
- Midwest: down 7.0% to 71.3, down 19.2% from August 2022
- South: down 9.1% to 86.5, down 17.6% from August 2022
- West: up 7.7% to 56.3, down 21.4% from August 2022
Economic factors affecting contract signings
It’s been mentioned in this space before that low housing inventory and high mortgage rates are making it difficult for homebuyers. "It's clear that increased housing inventory and better interest rates are essential to revive the housing market," notes Yun.
But rental prices right now are also discouraging potential homebuyers from doing more than dipping their toes in the market.
"The Federal Reserve must consider the sharply decelerating rent growth in its consideration of future monetary policy. There is no need to raise interest rates,” adds Yun.
In addition to traditional housing market factors, Yun is concerned about the impact of a looming government shutdown may have on sales activity: “Moreover, the government shutdown will disrupt some home sales in the short run due to the lack of flood insurance or delays in government-backed mortgage issuance.”
Mortgage rates have seen a lot of movement over the last few weeks, which is why working with a local loan officer can help you make the most of current market conditions.
Source: https://www.nar.realtor/newsroom/pending-home-sales-tumbled-7-1-in-august
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