Pending home sales slipped in April, as contract activity decreased for the sixth consecutive month, the National Association of Realtors reported. Only the Midwest region saw signings increase month-over-month, while the other three major regions reported declines. Each of the four regions registered a drop in year-over-year contract activity.
The Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contract signings, slid 3.9 percent to 99.3 in April. Year-over-year, transactions fell 9.1 percent. An index of 100 is equal to the level of contract activity in 2001.
“Pending contracts are telling, as they better reflect the timelier impact from higher mortgage rates than do closings,” said 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 percent in 2022 and home price appreciation to moderate to 5 percent by year’s end.
“The escalating mortgage rates have bumped up the cost of purchasing a home by more than 25 percent from a year ago, while steeper home prices are adding another 15 percent to that figure.”
In some cases, these higher rates increase mortgage payments by as much as $500 per month. Yun notes that such 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,” Yun explained. “However – in this present market – potential homebuyers are challenged and thus may attempt to mitigate the rising cost of ownership by opting for a 5-year adjustable-rate mortgage or by widening their geographic search area to more affordable regions.”
Yun cites that more work-from-home opportunities have allowed would-be buyers to expand their home search.
There are scenarios in which the market soon improves for buyers, as well, according to Yun.
“If mortgage rates stabilize roughly at the current level of 5.3 percent and job gains continue, home sales could also stabilize in the coming months,” Yun said. “Home sales in 2022 are expected to be down about 9 percent, and if mortgage rates climb to 6 percent, then the sales activity could fall by 15 percent.
“Home prices in the meantime appear in no danger of any meaningful decline,” he continued. “There is an ongoing housing shortage, and properly listed homes are still selling swiftly – generally seeing a contract signed within a month.”
Month-over-month, the Northeast PHSI fell 16.20 percent to 74.8 in April, a 14.3 percent drop from a year ago. In the Midwest, the index rose 6.6 percent to 100.7 last month, down 2.8 percent from April 2021.
Pending home sales transactions in the South dipped 4.7 percent to an index of 119.0 in April, down 10.3 percent from April 2021. The index in the West slipped 4.3 percent in April to 85.9, a 10.5 percent decrease from a year prior.