Pending Home Sales Drop More Than Forecast in August, Down 24% From a Year Ago

Highlights Sep.28,2022 06:00

The housing market is slowing down as higher mortgage rates dent affordability.

Pending home sales fell 2% in August as the housing market continued its slowdown amid rising mortgage rates and inflation, the National Association of Realtors reported on Wednesday.

The drop was more than the forecast 1.5% decline and brings sales down 24.2% from a year ago.

Confidence among U.S. home builders keeps slumping

“The direction of mortgage rates – upward or downward – is the prime mover for home buying, and decade-high rates have deeply cut into contract signings,” said NAR Chief Economist Lawrence Yun. “If mortgage rates moderate and the economy continues adding jobs, then home buying should also stabilize.”

The housing sector is undergoing a correction from its red-hot performance of 2021. Mortgage rates that have doubled to 6% and higher have made homes less affordable and while prices have begun increasing at a slower pace, they are still higher than many would-be buyers can afford.

“The housing market is rebalancing after two unsustainably-hot years of activity,” Hannah Jones, economic data analyst for Realtor.com, said ahead of the report’s release. “Affordability challenges have characterized much of 2022, but have become particularly difficult in recent months amidst stubborn inflation and high mortgage rates, which surpassed 2008 levels and reached 6.29% last week.”

New home sales though that may have been buyers rushing to take advantage of homes that became available and builder discounts. But that is not expected to last if mortgage rates remain elevated.

“As a result of the current interest rate environment and weaker economic activity, NAR expects existing-home sales to decline 15.2% in 2022, to 5.19 million units, while new home sales are projected to fall by 20.9%,” the NAR’s Yun said.

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