Pending home sales in the United States witnessed a significant decline last month, attributed to the impact of elevated mortgage rates which deterred potential buyers and sellers from finalizing transactions. The Pending Home Sales Index by the National Association of Realtors (NAR) plummeted by 7.1% to 71.8 in August, a sharp drop compared to the anticipated 0.8% decrease projected by Refinitiv-analyzed analysts. Year-over-year, pending transactions have fallen by 18.7%, as per NAR’s data.
Lawrence Yun, the chief economist at NAR, stated, “Mortgage rates have surged above 7% since August, reducing the pool of potential home buyers. Some prospective buyers are pausing and reevaluating their preferences regarding location and type of home to better align with their financial capabilities.”
Simultaneously, homeowners with significantly lower interest rates are opting to stay put, exacerbating the ongoing shortage of housing inventory, which has been driving up home prices since the onset of the pandemic. Furthermore, the sale of new homes unexpectedly declined in August, dropping by 8.7% to a seasonally adjusted annual rate of 675,000 units, as reported by the latest data from the Commerce Department.
The drop in home sales signifies that the resurgence of mortgage rates is dissuading numerous potential buyers from participating in the market. This decrease in demand contributed to a decline in new home prices for the past month. The median price for new homes decreased from $436,700 the preceding month to $430,000. Nonetheless, this figure remains significantly higher than the average pre-pandemic levels.
At the close of July, the available homes for sale were over 9% lower than the corresponding period in the previous year and marked a 46% decrease from the typical pre-pandemic levels in early 2020, according to a recent report by Realtor.com.
Earlier this month, Redfin reported that the median monthly mortgage payment reached a historic high of $2,632 during the four-week period ending on September 10. Concurrently, the average interest rate for the standard 30-year fixed-rate mortgage has consistently exceeded 7% and reached a 23-year peak of 7.41% last week, as indicated by the Mortgage Bankers Association.
Yun emphasized, “It’s evident that an increase in housing inventory and more favorable interest rates are pivotal in revitalizing the housing market.
The recent plummet in pending home sales in the US can be attributed to the substantial increase in mortgage rates, which has deterred both potential buyers and sellers from engaging in real estate transactions.
The Pending Home Sales Index, a metric provided by the National Association of Realtors, saw a significant 7.1% decline in August, plummeting to 71.8. This decline surpassed the expectations of analysts polled by Refinitiv, who had anticipated a more modest drop of 0.8%. On a year-over-year basis, pending transactions have witnessed a substantial decrease of 18.7% according to the NAR’s data.
Lawrence Yun, the NAR’s chief economist, pointed out that mortgage rates have been on the rise, surpassing 7% since August. This surge in rates has resulted in a diminished pool of potential homebuyers, prompting some to reassess their expectations regarding home type and location to better align with their budgets.
Conversely, individuals who have locked in lower rates as sellers are choosing to stay put, further exacerbating the prevailing inventory shortage. This inventory scarcity has been a driving force behind the persistent increase in home prices since the onset of the pandemic.
In tandem with the decline in pending home sales, the sale of new homes also experienced an unexpected dip in August, falling by 8.7% to a seasonally adjusted annual rate of 675,000 units, as reported by the Commerce Department.
Overall, the evidence suggests that the surge in mortgage rates has significantly impacted the housing market, resulting in decreased sales and influencing the housing inventory dynamics.