Pending home sales continue to decline

Pending home sales activity declined for a fifth straight month, the National Association of Realtors reported this morning.

The Pending Home Sales Index (PHSI) slipped 1.2% to a reading of 103.7 in March. On a year-over-year basis, transactions decreased 8.2%.

An index of 100 is equal to contractor activity in 2001. The PHSI is a forward-looking indicator of home sales based on contract signings.

“The falling contract signings are implying that multiple offers will soon dissipate and be replaced by much calmer and normalized market conditions,” said 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.”

Yun said that he 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. 

“The aspiration to purchase a home remains, but the financial capacity has become a major limiting factor,” Yun noted.

The economist 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 have 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,” said 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.”

As prices for existing and new homes have continued to sizzle, monthly rental property payments have also continued to quickly rise. As a result, more renters could begin exploring homeownership.

Sales of new single-family houses in March 2022 were at a seasonally adjusted annual rate of 763,000, the U.S. Census Bureau and the Department of Housing and Urban Development reported yesterday. The latest new home sales report is 8.6% below the revised February rate of 835,000 and 12.6% below the March 2021 estimate of 873,000. 

The median sales price of new houses sold in March 2022 was $436,700 rising 3.6% from a median price of $421,600 in February while the average sales price was $523,900, a 3.1% increase from an average price of $508,100 in February. The average price for March also jumped 26.3% from an average price of $414,700 for the same month a year ago.

“Fast-rising rents will encourage renters to consider buying a home, though higher mortgage rates will present challenges,” Yun said. “Strong rent growth nonetheless will lead to a boom in multifamily housing starts, with more than 20% growth this year.”

Yun added that single-family homebuilders will be more cautious, despite the current tight inventory conditions, saying “I expect that to result in a boost to construction of less than 5%.”

Here’s how the PHSI performed on a regional basis:

• Month-over-month, the Northeast PHSI grew 4% 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.