Pending home sales declined again in April, as contract activity decreased for the sixth consecutive month, the National Association of Realtors (NAR) reported. The Pending Home Sales Index (PHSI) slid 3.9% to 99.3 last month, and transactions fell 9.1% year over year.
“Pending contracts are telling, as they better reflect the timelier impact from higher mortgage rates than do closings,” says 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.
In some cases, the higher rates increase mortgage payments by as much as $500 per month. Yun notes the price hikes are already a burden, but they become even more problematic to a family on a budget contending with rapid inflation, including surging 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,” explains Yun. “However—in this present market—potential home buyers are challenged and thus may attempt to mitigate the rising cost of ownership by opting for a five-year adjustable-rate mortgage or by widening their geographic search area to more affordable regions.”
Yun also believes there are scenarios in which the market soon improves for buyers.
“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,” continues Yun. “Home sales in 2022 are expected to be down about 9%, and, if mortgage rates climb to 6%, then the sales activity could fall by 15%.”
Of the four major U.S. regions, only the Midwest region saw signings increase month over month, while the other three regions reported declines. Each of the four regions registered a drop in year-over-year contract activity.
The Northeast PHSI fell 16.2% 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 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.
