After dropping slightly month over month in May, pending home sales ticked back up in June, rising 0.3%, according to data released Thursday by the National Association of Realtors (NAR). It contrasts with new home sales, which moderated in the same period (-2.5%).
Year over year, pending home sales were down 15.6%, a smaller decrease than the 22.2% annual drop recorded in May. Taking a step back, pending home sales remain at a relatively low level, and despite this month’s setback, new home sales have climbed convincingly (+22.5%) above last summer’s lows.
The NAR’s Pending Home Sales Index climbed to a reading of 76.8 in June. An index of 100 is equal to the level of contract activity in 2001.
“The recovery has not taken place, but the housing recession is over,” said NAR Chief Economist Lawrence Yun. “The presence of multiple offers implies that housing demand is not being satisfied due to lack of supply. Homebuilders are ramping up production and hiring workers.”
The trade association forecasts the 30-year fixed mortgage rate to close at 6.4% this year and then decline to 6.0% in 2024. Meanwhile, the unemployment rate will rise slightly to 3.7% in 2023 before increasing to 4.1% in 2024, according to NAR’s forecast.
“With consumer price inflation calming close to the Federal Reserve’s desired conditions, mortgage rates look to have topped out,” Yun added. “Given the ongoing job additions, any meaningful decline in mortgage rates could lead to a rush of buyers later in the year and into the next.”
NAR expects existing-home sales to decrease 12.9% in 2023, settling at 4.38 million, before ticking up 15.5%, to 5.06 million in 2024. In the meantime, national median existing-home prices will remain steady, according to NAR’s forecasts. Compared to last year, existing home-prices are poised to recede 0.4%, to $384,900, before rebounding by 2.6% next year, to $395,000.
“It is critical to expand supply as much as possible to widen access to homebuying for more Americans,” Yun said. “Home prices will be influenced by how much inventory is brought to market. Increased homebuilding will tame price growth, while limited construction will lead to home price appreciation outpacing income growth.”
On the flip side, newly constructed home sales are forecast to increase 12.3% in 2023, to 720,000. The trade group expects they will increase by another 13.9% in 2024, to 820,000. Hence, the national median new home price will decrease by 1.9% this year, to $449,100, and then improve by 4.2% next year, to $468,000.
Regionally, on a month-over-month basis, the Midwest (77.6) and the Northeast (67.1) pending home sales climbed while the South (93.3) and West (57.7) fell. All four U.S. regions saw year-over-year declines in transactions, with the Midwest (77.6) posting the largest annual drop at 17.1%.
According to NAR, prices in the West – the country’s most expensive region – are expected to falter while the more affordable Midwest region will likely see a small, positive increase. (Several of the country’s top emerging housing markets are in Indiana.)
Meanwhile, housing starts are forecast drop 5.3% from 2022 to 2023, to 1.47 million, before increasing to 1.55 million, or 5.4%, in 2024.
“Today’s data signal that although mortgage rates remained high in June, their relative steadiness in the month might have been a difference-maker for home shoppers trying to juggle high costs and stretched budgets. Nevertheless, inventory shortages and living alternatives are likely to keep a lid on existing home sales this year. We’re expecting the smallest annual sales tally in over a decade,” said Realtor.com Chief Economist Danielle Hale.