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Pending home sales recorded their fourth-straight month of declines, according to data released Friday by the National Association of Realtors.
Pending sales fell 10.2 percent between August and September, according to the new data, bringing pending transactions 31 percent lower than they were in September of 2021.
“Persistent inflation has proven quite harmful to the housing market,” NAR Chief Economist Lawrence Yun said in a statement. “The Federal Reserve has had to drastically raise interest rates to quell inflation, which has resulted in far fewer buyers and even fewer sellers.”
It’s unlikely that mortgage rates will retreat from their current highs anytime soon, Yun noted, weakening buyers purchasing power for the long run.
“The new normal for mortgage rates could be around 7 percent for a while,” Yun said. “On a $300,000 loan, that translates to a typical monthly mortgage payment of nearly $2,000, compared to $1,265 just one year ago – a difference of more than $700 per month. Only when inflation is tamed will mortgage rates retreat and boost home purchasing power for buyers.”
All regions charted declines in pending sales, with the Pending Home Sales Index declining 16.2 percent in the Northeast, 8.8 percent in the Midwest, 8.1 percent in the South and 11.7 percent in the West.
Pending home sales work as an indicator of where the market is headed, measuring contract signings to gage where sales will be in a few months time.
As sales slow, experts predicted pending home sales will continue to slow even further in the coming months.
“It would not be surprising to see home sales slow more substantially in coming months as overall home buyer affordability remains at decade low levels due to the combination of high home prices and rising mortgage rates,” Al Otero, Portfolio Manager at Armada ETF Advisors said in a statement. Unless a more affordable product can be delivered to end consumers or there is a reset in construction costs and mortgage rates, one can assume that we may see some further weakness as we move through the winter season.”