Pending home sales continued to drop in August, recording a 1.0% month-over-month decline that resulted in an index reading of 88.4, according to data released Wednesday by the National Association of Realtors.
In July, the index fell 1.0% after recording an 8% drop in June. The Pending Home Sales Index has declined for nine out of the past 10 months.
Year over year, the PHSI was down 24.2%, marking the 15th consecutive month of annual drops. An index of 100 is equal to the level of contract activity in 2001.
“The direction of mortgage rates – upward or downward – is the prime mover for home buying, and decade-high rates have deeply cut into contract signings,” Lawrence Yun, NAR’s chief economist, said in a statement. “If mortgage rates moderate and the economy continues adding jobs, then home buying should also stabilize.”
Yun expects economy will remain sluggish thru rest of year with mortgage rate most likely around 7% in the coming months. He also notes that mortgage rates will not steady until inflation calms down.
Due to the rising mortgage rate environment and weaker overall economic activity, NAR said it expects existing-home sales to fall 15.2% year over year in 2022, to 5.19 million units. In addition, new home sales are projected to drop 20.9% from a year ago.
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According to Yun, limited inventory and almost non-existent distressed property sales have supported home prices, which he predicts will rise by 9.6% in 2022.
“Next year, the annual median home price is expected to rise by only 1.2%,” Yun said. “Home sales will pick up in the second half of 2023, but will be down by 7.1% overall.”
All four major U.S. regions recorded year-over-year decreases in contract signings. The Western region saw the largest drop at 31.3% to a reading of 71.0. Compared to a month ago three out of four regions posted double digit pending sales declines. Month over month, the South (105.4), the Northeast (76.6), and the Midwest (88.4) saw decreases of 0.9%, 3.4%, and 5.2% respectively, while the West posted a 1.4% monthly gain.
“Home prices are the least affordable in the West and, consequently, the region suffered deeper annual declines in contract signings due to rising interest rates when compared to other areas of the country,” Yun added. “However, the recent increases of the last two months, though small, are encouraging.”
