A Coldwell Banker “Under Contract” sign stands outside a property in Washington, DC
Andrew Horrer | Bloomberg | Good pictures
Pending home sales, a measure of contracts signed on existing homes, fell a worse-than-expected 10.2% in August to September, the National Association of Realtors said.
Economists had predicted a 4% drop. Sales were down 31% year-over-year.
This represents the lowest level in the outstanding sales index since June 2010, except for April 2020 in the early days of the Covid pandemic.
Real estate firms point to sharply higher mortgage rates, which were at record lows in the first two years of the pandemic. According to Mortgage News Daily, the average rate on the popular 30-year fixed mortgage was around 3% at the start of the year, but has since risen quickly, surpassing 6% in June. It retreated slightly in July and August, but started to rise again, surpassing 7% in September, when these contracts were signed.
“Persistent inflation has proven to be extremely damaging to the housing market,” said NAR Chief Economist Lawrence Yun. “The Federal Reserve has had to raise interest rates sharply to control inflation, resulting in fewer buyers and fewer sellers.”
Mortgage claim And new listings are dwindling because homeowners are unwilling to give up their record-low interest rates to trade for higher rates. For potential buyers, the increase in payments means the monthly payment on a median-priced home, with a 20% down payment, is now $1,000 higher than it was in January.
“As wages lag behind inflation and rates rise, buyers’ purchasing power has been reduced above $100,000,” said George Radiu, senior economist at Realtor.com.
“As we look to the rest of the year, we can expect interest rates to continue on their upward path. The Federal Reserve’s monetary tightening has yet to have an impact on inflation, meaning the bank is expected to increase its policy rate further,” he added.
Red-hot house prices It starts to cool down And even if some local markets decline, the decline will not be enough to offset the increase in interest rates. House prices have risen more than 40% since the start of the pandemic, fueled largely by early interest rates.
Regionally, pending home sales in the Northeast fell 16.2% month-over-month and 30.1% year-over-year. In the Midwest, sales fell 8.8% this month and 26.7% from a year ago.
In the South, sales retreated 8.1% for the month and fell 30.0% for the year, and in the West, the nation’s most expensive region, sales fell 11.7% for the month and were down 38.7% from a year earlier.