Pending home sales see slight improvement in September
Pending home sales move ahead slightly in September despite home buyers faced with mortgage rates rising well above 8% and a low inventory of existing homes on the market.
The Pending Home Sales Index (PHSI) for September increased 1.1% to 72.6 in September compared to the prior month. On a year-over-year basis, pending transactions fell 11% however.
Released this morning by the National Association of Realtors (NAR), the PHSI is a forward-looking indicator of home sales based on contract signings. An index reading of 100 is equal to the level of contract activity in 2001.
“Despite the slight gain, pending contracts remain at historically low levels due to the highest mortgage rates in 20 years,” said Lawrence Yun, NAR chief economist. “Furthermore, inventory remains tight, which hinders sales but keeps home prices elevated.”
The NAR has also delivered updated forecasts for market conditions in 2023 and beyond.
The association forecasts that the 30-year fixed mortgage rate will average 6.9% for 2023 and decrease to an average of 6.3% in 2024, while the unemployment rate will lower to 3.7% in 2023 before increasing to 4.1% in 2024.
Additionally, the NAR predicts existing-home sales will decrease 17.5% in 2023, settling at 4.15 million, before rising 13.5%, to 4.71 million in 2024.
Earlier this month, the NAR reported that existing-home sales fell 2% in September while inventory was down 8.1% on a year-over-year basis. Given the lack of housing inventory, new home sales conversely shot up 12.% in September.
Compared to last year, national median existing-home prices are projected to remain stable in 2023 – edging higher by 0.1% to $386,700, before increasing by 0.7% next year, to $389,500.
Housing starts will drop 10.4% from 2022 to 2023, to 1.39 million, before rising to 1.48 million, or 6.5%, in 2024, the NAR said.
“Because of homebuilders’ ability to create more inventory, new-home sales could be higher this year despite increasing mortgage rates,” Yun said. “This underscores the importance of increased inventory in helping to get the overall housing market moving.”
The NAR expects newly constructed home sales will grow from last year by 4.5% in 2023, to 670,000 – because of additional inventory in this market segment – and increase by another 19.4% in 2024, to 800,000.
The national median new home price is expected to drop by 5.9% this year, to $430,800, and improve by 3.5% next year, to $445,800.
Here’s how the latest PHSI reads on a regional basis:
- The Northeast PHSI increased 0.8% from last month to 63.1, a loss of 12.7% from September 2022.
- The Midwest index expanded 4.1% to 74.3 in September, down 9.2% from one year ago.
- The South PHSI rose 0.7% to 87.1 in September, retreating 10.7% from the prior year.
- The West index declined 1.8% in September to 55.3, dropping 12.9% from September 2022.
“Sales are expected to turn positive by early next year, with affordable regions and fast job-creating markets in better positions to recover, led by the Midwest and South,” Yun added.
The NAR will report existing-home sales for October on Nov. 21. The next PHSI will be released on Nov. 30.