Pending home sales dropped in March, marking the fifth straight month that contract activity has declined, according to the National Association of Realtors (NAR). The Pending Home Sales Index (PHSI) fell 1.2% to a reading of 103.7 in March, and transactions decreased 8.2% on a year-over-year (YOY) basis. An index of 100 is equal to the level of contract activity in 2001.
“The falling contract signings are implying that multiple offers will soon dissipate and be replaced by much calmer and normalized market conditions,” says NAR chief economist Lawrence Yun. “As it stands, the sudden large gains in mortgage rates have reduced the pool of eligible home buyers, and that has consequently lowered buying activity. The aspiration to purchase a home remains, but the financial capacity has become a major limiting factor.”
Yun forecasts the 30-year fixed mortgage rate will reach 5.3% by the fourth quarter, mortgage rates to average 4.9% in 2022, and mortgage rates to hit 5.4% by 2023. Additionally, Yun projects inflation to average 8.2% in 2022, although it will begin to moderate in the second half of the year.
According to the NAR, higher mortgage rates and sustained price appreciation has led to a year-over-year increase of 31% in mortgage payments, as of March.
“Overall existing-home sales this year look to be down 9% from the heated pace of last year,” says Yun. “Home prices are in no danger of decline on a nationwide basis, but the price gains will steadily decelerate such that the median home price in 2022 will likely be up 8% from last year.”
Yun says rental properties have also seen monthly payment jumps and that, as a result, many renters will likely explore ownership possibilities.
“Fast-rising rents will encourage renters to consider buying a home, though higher mortgage rates will present challenges,” says Yun. “Strong rent growth nonetheless will lead to a boom in multifamily housing starts, with more than 20% growth this year.”
Of the four major U.S. regions, only the Northeast experienced an increase in contract signings on a month-over-month basis. All four regions reported decreases in YOY contract activity.
Month-over-month, the Northeast PHSI increased 4% in March but declined 9.2% compared with March 2021. In the Midwest, the index dropped 6.1% compared with February and 4.8% compared with March 2021.
Pending home sales transactions in the South decreased 0.9% on a month-over-month basis and 9.5% on a YOY basis. The index in the West declined 0.2% in March and 8.4% from a year prior.
