Pending home sales dipped 1.0% in July compared with June and were down 19.9% compared with July 2021, according to the National Association of Realtors (NAR).
It was the second consecutive month that pending home sales declined.
Pending home sales have now fallen for eight of the last nine months.
Three out of four major regions registered month-over-month decreases, while the West saw a minor gain.
Year-over-year, all four regions saw double-digit decreases, the largest of which occurred in the west.
“In terms of the current housing cycle, we may be at or close to the bottom in contract signings,” says Lawrence Yun, chief economist for NAR, in a statement. “This month’s very modest decline reflects the recent retreat in mortgage rates. Inventories are growing for homes in the upper price ranges, but limited supply at lower price points is hindering transaction activity.”
Due to high home prices and rising mortgage interest rates, housing affordability in July plummeted to its lowest level since 1989, according to NAR.
The mortgage payment on a typical home jumped to $1,944, an increase of 54%, or $679, from one year ago.
“Home prices are still rising by double-digit percentages year-over-year, but annual price appreciation should moderate to the typical rate of 5 percent by the end of this year and into 2023,” Yun says. “With mortgage rates expected to stabilize near 6 percent alongside steady job creation, home sales should start to rise by early next year.”
“Pending home sales are a forward-looking indicator of home sales based on contract signings,” explains Odesa Kushi, deputy chief economist for First American. “U.S. pending-home sales for July fell 1 percent from the prior month, a modest decline and smaller than the expected decline of 3 percent.”
“Housing is one of the most interest-rate sensitive sectors, and mortgage rates eased somewhat last month. The July respite from rising mortgage rates likely buoyed contract signings, but contract signings are still down nearly 20% year over year.”
“The year-over-year decline in contract signings is not surprising given affordability was down by more than 50 percent in July compared with last year,” Kushi says. “The decline in affordability has contracted housing demand, which reduces the pace of sales.”
“Let’s not forget the supply side of this story, housing is unique in that the a seller is typically also a buyer,” she adds. “As mortgage rates have increased, homeowners have limited incentive to sell if it will cost them more each month to borrow the same amount of money.”
“Higher rates leave existing homeowners feeling ‘rate locked-in’ to their existing homes, which lead to fewer homes for sale and fewer sales. The recent rise in inventory is more about homes sitting on the market longer than new inventory being added. New listings are down nearly 13 percent year over year as of mid-August.”