Pending home sales dropped in March, signifying five straight months that contract activity has declined, according to the National Association of Realtors.
Month over month, only the Northeast saw an increase in contract signings, while the three other major U.S. regions experienced declines in transactions. All four regions reported decreases in year-over-year contract activity.
Overall, the Pending Home Sales Index (PHSI) fell 1.2% to 103.7 in March. Year over year, transactions sank 8.2%.
“The falling contract signings are implying that multiple offers will soon dissipate and be replaced by much calmer and normalized market conditions,” says 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. The aspiration to purchase a home remains, but the financial capacity has become a major limiting factor.”
Yun expects the 30-year fixed mortgage rate to reach 5.3% by the fourth quarter, mortgage rates to average 4.9% in 2022 and to hit 5.4% by 2023. He forecasts inflation to average 8.2% in 2022, although it will start to moderate to 5.5% in the second half of this year. As of March 2022, higher mortgage rates and sustained price appreciation has led to a year-over-year increase of 31% in mortgage payments.
“Overall existing-home sales this year look to be down 9% from the heated pace of last year,” adds 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.”
While costs have soared for existing and new homes, rental properties have seen monthly payments jump, too, a turn that Yun says will lead to more renters exploring ownership.
“Fast-rising rents will encourage renters to consider buying a home, though higher mortgage rates will present challenges,” Yun continues. “Strong rent growth nonetheless will lead to a boom in multifamily housing starts, with more than 20% growth this year.”
Yun predicts the unemployment rate will average 3.7% in 2022 and estimates gross domestic product to expand 2.8%. With rising mortgage rates, he adds that single-family homebuilders will be more cautious, despite the current tight inventory conditions, saying he expects that to result in a boost to construction of less than 5%.
Month-over-month, the Northeast PHSI grew 4.0% to 89.3 in March, a 9.2% fall from a year ago. In the Midwest, the index dropped 6.1% to 94.7 last month, down 4.8% from March 2021.
Pending home sales transactions in the South decreased 0.9% to an index of 125.8 in March, down 9.5% from March 2021. The index in the West declined 0.2% in March to 89.8, down 8.4% from a year prior.
Photo by Ian MacDonald on Unsplash
