WASHINGTON (September 28, 2022) – Pending home sales fell for the third straight month in August, according to the National Association of Realtors.®Transactions fell month-on-month in three of the four major regions, while the West saw a slight increase. Year-over-year, all four regions posted his double-digit declines.
Pending Home Sales Index (PHSI)* www.nar.realtor/pending-home-sales, a forward-looking measure of home sales based on contract signings, fell 2.0% in August to 88.4. Pending transactions decreased 24.2% year-over-year. An index of 100 equals the level of contract activity in 2001.
Lawrence Yun, chief economist at the NAR, said, “Mortgage interest rates have been the driving force behind home purchases, and the highest interest rates in a decade have seriously hurt contract signings.” And if the economy continues to add jobs, home buying should stabilize.”
Yun expects the economy to remain weak through the rest of the year, with mortgage rates rising to nearly 7% in the coming months.
“Only when inflation subsides will mortgage rates begin to stabilize,” Yoon said.
As a result of the current interest rate environment and weaker economic activity, the NAR forecasts that existing home sales will decline 15.2% to 5.19 million units in 2022, while new home sales will decline 20.9%.
Yun said limited housing inventory and the sale of nearly non-existent distressed properties are supporting home prices. Overall, he predicts that prices will rise by 9.6% in 2022.
In 2023, Yun expects price increases to slow as the year progresses, with a corresponding increase in sales.
“Next year, median annual house prices are expected to rise by only 1.2%,” Yoon added. “Home sales will rebound in the second half of 2023, but overall he will decline by 7.1%.”
Regional breakdown of pending home sales
The Northeast’s PHSI decreased 3.4% from last month to 76.6, down 19.0% from August 2021. The Midwest index fell 5.2% in August to 88.4, down 21.1% from a year earlier.
The Southern PHSI fell 0.9% in August to 105.4, down 24.2% from a year ago. The Western Index rose 1.4% to 71.0 in August, down 31.3% from August 2021.
“Housing prices are among the most affordable in the West, and as a result, the region has seen a more severe annual decline in contract signings due to higher interest rates compared to the rest of the country,” Yoon said. “But the recent increase over the past two months is small but encouraging.”
National Association of Realtors® It is the largest trade association in the United States, representing more than 1.5 million members involved in all aspects of the residential and commercial real estate industry.
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*The Pending Home Sales Index is a leading indicator for the housing sector based on pending sales of existing homes. If a contract has been signed but the transaction has not been completed, the sale will be listed as pending, but the sale is typically completed within 1-2 months of signing.
Pending deals are a good early indicator of upcoming sales closures. However, the time from pending contract to sale completion is not the same for all home sales. Variation in the length of the process from pending contract to closing of the sale can be caused by issues such as buyer problems obtaining mortgage financing, home inspection issues, or valuation issues.
The index is based on a sample covering approximately 40% of the monthly multiple listing service data. In developing the index’s model, it was demonstrated that the level of sales contract activity each month paralleled the level of existing home sales in the next two months.
An index of 100 equals the average level of contract activity in 2001, the first year covered. Coincidentally, the volume of pre-owned home sales in 2001 fell within the 5 million to 5.5 million range that is considered normal for the current US population.
Note: Existing Home Sales for September will be reported on October 20th. The next pending home sales index will be released on October 28th. All release times are 10am ET.