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Pending home sales posted the first monthly decrease since November 2022 as the limited supply of homes for sale failed to meet homebuyer demand, according to data released Thursday by the National Association of Realtors.
The Pending Home Sales Index dropped by 5.2 percent in March to a reading of 78.9 — 23.2 percent lower than their March 2022 levels, according to data released by the NAR.
The extremely low inventory has brought about a market in which sales are low but competition for the few homes on the market is still considerable, with many would-be sellers reluctant to sell their homes and be forced to contend with higher mortgage rates.
“The lack of housing inventory is a major constraint to rising sales,” NAR Chief Economist Lawrence Yun said in a statement. “Multiple offers are still occurring on about a third of all listings, and 28 percent of homes are selling above list price. Limited housing supply is simply not meeting demand nationally.”
Mortgage rates increased modestly in March, other experts noted, further depressing buyer interest.
“Though pending home sales dropping in March breaks three months of momentum, it’s not a tremendous surprise. Mortgage interest rates rose in March, so it makes sense that fewer buyers signed contracts,” Kate Wood, a home expert at the personal finance website Nerdwallet, said in a statement. “Affordability is already a major challenge due to higher home prices, and every time interest rates increase the situation gets harder for buyers.”
Pending home sales represent homes that have gone under contract but have not officially been sold yet. They provide a snapshot of where the housing market is headed in the immediate future.
Yun forecasted that the economy will continue adding jobs and that the 30-year mortgage rate will eventually drop to 6 percent this year and 5.6 percent later this year, resulting in a stronger second half of 2022.
“Sales in the second half of the year should be notably better than the first half as job gains continue and more favorable mortgage rates are expected,” said Yun. “Sales of new homes are already matching 2019 pre-COVID activity and are expected to increase in 2023, largely due to plentiful inventory in this segment of the market.”
Pending sales fell on a monthly basis in three out of four U.S. regions, rising only in the South where the Pending Home Sales Index improved by 0.2 percent, but was down 19.8 percent from the year prior.
The Northeast index fell 8.1 percent to 66.6, down 24.3 percent from March 2022, while the Midwest index fell by 10.7 percent to 75.7, down 21.5 percent from a year ago. The index for the West decreased 8 percent to 59.4, a 32.2 percent reduction.