Pending home sales slide in April

Home sales in 2022 could fall by as much as 15% if mortgage rates continue to climb.

HBSDealer Staff

5/26/2022

A breakdown of pending home sales for April 2022 from the National Association of Realtors.

Inflation and rising mortgage rates continue to hinder the housing market as pending home sales declined in April, the National Association of Realtors reported this morning.

The Pending Home Sales Index (PHSI) for April fell 3.9% to 99.3 in April. The PHSI is a forward-looking indicator of home sales based on contract signings.

Year-over-year, transactions fell 9.1%. An index of 100 is equal to the level of contract activity in 2001.

“Pending contracts are telling, as they better reflect the timelier impact from higher mortgage rates than do closings,” said Lawrence Yun, NAR’s chief economist. “The latest contract signings mark six consecutive months of declines and are at the slowest pace in nearly a decade.”

With mortgage rates rising, Yun forecasts existing-home sales to wane by 9% in 2022 and home price appreciation to moderate to 5% by year’s end.

“The escalating mortgage rates have bumped up the cost of purchasing a home by more than 25% from a year ago, while steeper home prices are adding another 15% to that figure.”

The NAR noted that higher interest rates have increased mortgage payments by as much as $500 per month. Rising costs have become even more problematic to families on a budget who are already battling inflation, along with rising fuel and food costs.

“The vast majority of homeowners are enjoying huge wealth gains and are not under financial stress with their home as a result of having locked into historically low interest rates, or because they are not carrying a mortgage,” Yun explained. “However – in this present market – potential homebuyers are challenged and thus may attempt to mitigate the rising cost of ownership by opting for a 5-year adjustable-rate mortgage or by widening their geographic search area to more affordable regions.”

Yun cites that more work-from-home opportunities have allowed would-be buyers to expand their home search.

But the worst may be yet to come. While home sales in 2022 are expected to decline by about 9%, they could fall by as much as 15% if mortgage rates climb to 6%.

“If mortgage rates stabilize roughly at the current level of 5.3% and job gains continue, home sales could also stabilize in the coming months,” Yun said.”

Here’s how Pending Home Sales break down by Region:

Month-over-month, the Northeast PHSI fell 16.20% to 74.8 in April, a 14.3% drop from a year ago.
In the Midwest, the index rose 6.6% to 100.7 last month, down 2.8% from April 2021.
Pending home sales transactions in the South dipped 4.7% to an index of 119.0 in April, down 10.3% from April 2021.
The index in the West slipped 4.3% in April to 85.9, a 10.5% decrease from a year prior.