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Pending home sales fell in November for the sixth consecutive month, yet another sign that things may continue to get worse for real estate agents before they get better.
It’s a continuation of a deep drop from pandemic-era highs that has seen pending home sales decline by 38 percent since the same time last year.
“Pending home sales recorded the second-lowest monthly reading in 20 years as interest rates, which climbed at one of the fastest paces on record this year, drastically cut into the number of contract signings to buy a home,” NAR Chief Economist Lawrence Yun said in a statement.
The Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contract signings, fell 4.0% to 73.9 in November. Year-over-year, pending transactions dropped by 37.8%. #NARPHS pic.twitter.com/Eydpjg6OH8
— NAR Research (@NAR_Research) December 28, 2022
Not every home that goes pending results in a completed transaction. Buyers can sometimes back out of deals if they learn something new about a home or get cold feet. But the number of pending home sales in a given month is considered a leading indicator of what home transactions could look like in the ensuing month or two.
That could mean a particularly dry December and January for real estate agents during an already-slow season.
And it’s not just buyers who are balking at high mortgage rates and prices for now, Realtor.com Senior Economist George Ratiu said in a statement. Sellers are backing out of the market too.
“With no pressing need to sell, many are choosing to settle in for the winter months and wait for next year’s spring thaw,” Ratiu said in the statement. “We can expect transaction activity to remain subdued over the next few months.”
Housing economists say the slowdown in housing has its origins in the Federal Reserve’s aggressive steps to raise borrowing rates and shrink its balance sheet in an effort to slow this year’s exceptionally high inflation levels. Mortgage rates more than doubled from their levels a year ago, which were near historic all-time lows.
Now the slowing housing market is starting to contribute to a slowdown in the broader economy, as residential investment has been in decline throughout the U.S. for well over a year, Yun said in the release.
Still, there may be some early signs that homes may be on a path to greater affordability as prices and mortgage rates continue to fall.
“There are approximately two months of lag time between mortgage rates and home sales,” Yun said in the release. “With mortgage rates falling throughout December, home-buying activity should inevitably rebound in the coming months and help economic growth.”
While that recent reversal may provide some relief, both prices and mortgage rates have a long way to go before buyers experience anything resembling last year’s levels of affordability.
“Mortgage rates pulled back from November’s highs,” Ratiu said in the statement, “but are likely to close the year above 6.0%, keeping a lid on purchase budgets given that the monthly mortgage payment for a median-priced home is $780 higher than it was last year.”