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Northeast. Midwest. South. West. These regions divide the country into sections based on their geography. Also, as reported by the National Association of Realtors (NAR), all four of these regions reported that Pending Home Sales fell year-over-year.
However, as shown by the September edition of the Pending Home Sales Index (PHSI), pending sales transactions rose 1.1% over August with the Northeast, Midwest, and South growing, but numbers fell in the West.
"Despite the slight gain, pending contracts remain at historically low levels due to the highest mortgage rates in 20 years," said Lawrence Yun, NAR’s Chief Economist. "Furthermore, inventory remains tight, which hinders sales but keeps home prices elevated."
The current index stands at 72.6, which is an 11% decline in transactions from this time last year. The index was benchmarked to 100 using housing activity from 2001 as its baseline.
NAR forecasts that the 30-year fixed mortgage rate will average 6.9% for 2023 and decrease to an average of 6.3% in 2024, while the unemployment rate will lower to 3.7% in 2023 before increasing to 4.1% in 2024.
NAR predicts existing-home sales will decrease 17.5% in 2023, settling at 4.15 million, before rising 13.5%, to 4.71 million in 2024.
Compared to last year, national median existing-home prices are projected to remain stable in 2023—edging higher by 0.1% to $386,700, before increasing by 0.7% next year, to $389,500. Housing starts will drop 10.4% from 2022 to 2023, to 1.39 million, before rising to 1.48 million, or 6.5%, in 2024.
"Because of homebuilders' ability to create more inventory, new-home sales could be higher this year despite increasing mortgage rates. This underscores the importance of increased inventory in helping to get the overall housing market moving," said Yun.
NAR expects newly constructed home sales will grow from last year by 4.5% in 2023, to 670,000—because of additional inventory in this market segment—and increase by another 19.4% in 2024, to 800,000. The national median new home price will drop by 5.9% this year, to $430,800, and improve by 3.5% next year, to $445,800.
The Northeast PHSI increased 0.8% from last month to 63.1, a loss of 12.7% from September 2022. The Midwest index expanded 4.1% to 74.3 in September, down 9.2% from one year ago.
The South PHSI rose 0.7% to 87.1 in September, retreating 10.7% from the prior year. The West index declined 1.8% in September to 55.3, dropping 12.9% from September 2022.
"Sales are expected to turn positive by early next year, with affordable regions and fast job-creating markets in better positions to recover, led by the Midwest and South," added Yun.
Realtor.com Senior Economic Research Analyst Hannah Jones also commented on the report:
“Pending home sales grew 1.1% in September but remained 11% below year-ago levels as mortgage rates continued to ascend towards 8%. The Pending Home Sales Index increased month-over-month in the Midwest (+4.1%), the Northeast (+0.8%) and the South (+0.7%), but fell in the West (-1.8%),” Jones said. “All four regions saw year-over-year declines. New home sales, which are also based on contract signings, increased in September as buyers hurried to lock in a mortgage before rates could climb any higher.
“New home sales in September remained well above last year’s level, as buyers found suitable new home options amid waning existing inventory. The growth in new home sales is bolstered by an increase in single-family home construction in September, a welcomed development as more for-sale inventory can relieve the upward pressure on prices,” Jones continued. “However, the financial burden of a home purchase is climbing nationally with mortgage rates, cutting deeper into already-tight budgets. As a result, home builder sentiment fell to the lowest level since January this month as builders expressed concern over the growing number of buyers priced out of the market. Builders and homeowners alike are taking stock of today’s market and deciding how to move forward.”
“Pending home sales or contract signings measure the point when a buyer and seller have agreed on the price and terms for a specific home sale. As a result, they tend to lead existing home sales by roughly one-to-two months.”
“Today’s data signal that home sales activity is likely to remain steady, at a low level, over the next few months as limited options and significant affordability headwinds weigh on buyers. Existing home sales fell to a 13-year low in September, dropping below 4 million for the first time since October 2010.”
“Some home shoppers are finding creative ways to save money for a home purchase in light of today’s challenging housing market. More than half of surveyed buyers have or would consider moving in with their parents to save up to buy a home, especially young buyers who are less likely to have the benefit of existing home equity.”
“The housing market typically cools in the late fall through the winter, as buyers and sellers focus their attention on the season’s festivities,” Jones concluded. “With mortgage rates at 20-plus-year highs, it doesn’t take much to convince potential sellers to hold on to their current mortgage and see how the market pans out. As the winter approaches, elevated home prices and climbing mortgage rates may mean that buyers and sellers pull back more severely than in the typical year, hoping for more favorable conditions in the spring.”
Click here to see the report in its entirety.
