Pending home sales declined for the fourth consecutive month in September and for the 10th time in 11 months, according to the National Association of Realtors (NAR). The Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contract signings, fell 10.2% to a reading of 79.5 in September.
On a year-over-year basis, the PHSI declined by 31%. A PHSI reading of 100 is equal to the level of contract activity in 2001.
“Persistent inflation has proven quite harmful to the housing market,” says NAR chief economist Lawrence Yun. “The Federal Reserve has had to drastically raise interest rates to quell inflation, which has resulted in far fewer buyers and fewer sellers.”
Yun says new home listings are down compared with a year ago since many homeowners are unwilling to give up the “rock-bottom” 3% mortgage rates they locked in prior to rising rates in 2022. According to Freddie Mac, the average 30-year fixed-rate mortgage exceeded 7% for the first time since April 2002 during the week of Oct. 27.
“The new normal for mortgage rates could be around 7% for a while,” Yun says. “On a $300,000 loan, that translates to a typical monthly payment of nearly $2,000, compared to $1,265 just one year ago—a difference of more than $700 per month. Only when inflation is tamed will mortgage rates retreat and boost home purchasing power for buyers.”
On a regional basis, the Northeast PHSI declined 16.2% on a month-over-month basis in September and 30.1% on a year-over-year basis. Pending sales fell 8.8% from August to September in the Midwest and 26.7% compared with September 2021.
In the South, the PHSI fell 8.1% in September and declined 30% on a year-over-year basis. The West index decreased by 11.7% in September from August and by 38.7% compared with the prior year.
