According to the National Association of Realtors (NAR), the market registered a “modest” increase of pending home sales in June 2023 to a tune of 0.3% from May as the regions of the South and West posted monthly losses, while pending sales in the Northeast and Midwest grew, but at the same time, all four regions saw a year-over-year decline in completed transactions.
"The recovery has not taken place, but the housing recession is over," said NAR Chief Economist Lawrence Yun, "The presence of multiple offers implies that housing demand is not being satisfied due to lack of supply. Homebuilders are ramping up production and hiring workers."
The Pending Home Sales Index (PHSI)—a forward-looking indicator of home sales based on contract signings—rose 0.3% to 76.8 in June. Year over year, pending transactions fell by 15.6%. An index of 100 is equal to the level of contract activity in year 2001.
NAR further forecasts that the 30-year fixed mortgage rate will hit 6.4% this year and then decline to 6.0% in 2024, while the national unemployment rate will rise slightly to 3.7% in 2023 before increasing to 4.1% in 2024.
"With consumer price inflation calming close to the Federal Reserve's desired conditions, mortgage rates look to have topped out," Yun added. "Given the ongoing job additions, any meaningful decline in mortgage rates could lead to a rush of buyers later in the year and into the next."
Looking forward, the NAR expects the PHSI to decrease 12.94% between 2022 and 2023 at a rate of 4.38 million units, but expects numbers to climb by 15.5% to 5.06 million units in 2024. Compared to last year, national median existing-home prices will remain steady – declining 0.4%, to $384,900, before rebounding by 2.6% next year, to $395,000. The West – the country's most expensive region – will see reduced prices while the more affordable Midwest region is likely to see a small, positive increase. Housing starts will drop 5.3% from 2022 to 2023, to 1.47 million, before increasing to 1.55 million, or 5.4%, in 2024.
"It is critical to expand supply as much as possible to widen access to homebuying for more Americans," Yun concluded. "Home prices will be influenced by how much inventory is brought to market. Increased homebuilding will tame price growth, while limited construction will lead to home price appreciation outpacing income growth."
Newly constructed home sales will increase from last year by 12.3% in 2023, to 720,000 – due to additional inventory in this segment of the market – and increase by another 13.9% in 2024, to 820,000. The national median new home price will decrease by 1.9% this year, to $449,100, and then improve by 4.2% next year, to $468,000.
“Pending home sales data steadied in June, gaining 0.3% to 76.8, a contrast with new home sales which moderated in the same period (-2.5%). Taking a step back, pending home sales remain at a relatively low level, down 15.6% compared to one year ago, and despite this month’s setback, new home sales have climbed convincingly (+22.5%) above last summer’s lows. The existing home market continues to be hampered by lackluster selling interest among homeowners, a substantial number of whom are quite content to hold onto their existing low-rate mortgages. Meanwhile, builders who can work through construction challenges are benefitting from spillover buyer interest, especially if they can build for lower price points.”
“Pending home sales or contract signings are the first major step in a transaction, indicating that a buyer and seller have agreed on the price and terms for a specific home sale. Today’s data signal that although mortgage rates remained high in June, their relative steadiness in the month might have been a difference-maker for home shoppers trying to juggle high costs and stretched budgets. Nevertheless, inventory shortages and living alternatives are likely to keep a lid on existing home sales this year. We’re expecting the smallest annual sales tally in over a decade. Furthermore, with asking rents dipping for a second month in June, potential first-time home buyers may not be approaching their purchase with the same sense of urgency as they did when rents were rising at double-digit pace. This may result in slower sales churn, but also means that shoppers likely have more time when trying to make important trade-offs in the home buying process. Realtor.com housing data show that in June, homes were on the market nearly two weeks longer than at this time last year.
“Regionally, pending home sales increased in the Northeast and Midwest while the South and West saw declines in the month. From one year ago, sales are down in all four regions by a roughly similar magnitude ranging from 14.3% to 17.1%. With affordability top of mind for buyers, sales activity is more elevated in lower-cost markets. This trend is also reflected in data such as the Wall Street Journal/Realtor.com Emerging Housing Markets Index which saw Lafayette-West Lafayette, Ind. top the list yet again this quarter. In the Summer 2023 index, eight of the top ten and 14 of the top 20 emerging housing markets were located in the Midwest, a reflection of how shoppers are adapting to high costs.”