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Pending sales of single-family homes dropped sharply between May and June as buyers grappled with escalating mortgage rates and housing prices, data released Wednesday shows.
Pending home sales dropped 8.6 percent in June, falling 20 percent from the same period in 2021 while signaling a drop in closed contracts in the near-term, according to data from the National Association of Realtors.
Pending sales — which represent a home that has gone under contract but hasn’t yet closed — is just one key housing market metric to fall dramatically recently, with new home sales, existing home sales, and new residential construction all dipping under the weight of sky-high mortgage rates.
Pending sales saw a slight rebound in May, creeping up 0.7 percent after six straight months of declines, with June signaling a return to the trend of steady declines.
“Contract signings to buy a home will keep tumbling down as long as mortgage rates keep climbing, as has happened this year to date,” said NAR Chief Economist Lawrence Yun. “There are indications that mortgage rates may be topping or very close to a cyclical high in July. If so, pending contracts should also begin to stabilize.”
Buyers are pulling back as homes become more and more costly. According to the NAR, buying a home in June 2022 was about 80 percent more expensive than buying one in June 2019, meaning nearly a quarter of the buyers who purchased property in June 2019 no longer earn the qualifying income to purchase one today.
“Home sales will be down by 13% in 2022, according to our latest projection,” Yun said. “With mortgage rates expected to stabilize near 6% and steady job creation, home sales should start to rise by early 2023.”
Some experts saw the slow down as a welcome sign of a much needed market shift necessary to cool down a market that saw no signs of stopping over the past two years.
“Looking ahead, a slowdown in economic activity and pullback in business investments could lead to a moderation in the pace of mortgage rate gains, as investors shift allocations toward the safety of bonds,” George Ratiu, senior economist at Realtor.com said in a statement. “Combined with the increase in housing supply, we could see improved opportunities for homebuyers later in the year. The bottom line is that we are seeing a welcome shift for a housing market in need of a refresh.”
All geographic regions of the country saw declines in contract signings, with the Pending Home Sales Index falling 6.7 percent in the Northeast, 3.8 percent in the Midwest, 8.9 percent in the South, and 15.9 percent in the West.