Pending home sales trailed off for the fourth consecutive month in September, according to the National Association of Realtors [1]. Additionally, all four major regions recorded month-over-month and year-over-year declines in transactions.
The Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contract signings, slumped 10.2% to 79.5 in September. Year-over-year, pending transactions slid by 31.0%. An index of 100 is equal to the level of contract activity in 2001.
"Persistent inflation has proven quite harmful to the housing market," said NAR Chief Economist Lawrence Yun. "The Federal Reserve has had to drastically raise interest rates to quell inflation, which has resulted in far fewer buyers and even fewer sellers."
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Key Highlights:
- Pending home sales dropped for the fourth straight month, down 10.2% from August.
- Month-over-month, contract signings pulled back in all four major U.S. regions.
- Pending sales decreased in all regions compared to one year ago.
The Northeast PHSI descended 16.2% from last month to 64.2, a decline of 30.1% from September 2021. The Midwest index retracted 8.8% to 80.7 in September, down 26.7% from one year ago.
The South PHSI faded 8.1% to 97.0 in September, a drop of 30.0% from the prior year. The West index slipped by 11.7% in September to 62.7, down 38.7% from September 2021.
September experiences steep drop in pending-home sales, indicating further existing-home sales declines in October
“Pending-home sales plummet 10.2% in September, largest month-over-month decline since the start of the pandemic," said First American Chief Economist Mark Fleming. "This is not surprising as mortgage rates recent increase toward 7% and beyond dampened affordability and likely buyer enthusiasm, pending another round of rate increases by the Federal Reserve next week.”
Fleming continued, “This also strongly suggests October existing-home sales will also decline. While the number of households in the U.S. suggests that somewhere near 6 million existing-home home sales a year is normal, we are far from normal. Pending home sales indicates existing-home sales closer to 4 million SAAR than 5 million SAAR over the next few months.”
Yun also noted that new home listings are down compared to one year ago since many homeowners are unwilling to give up the rock-bottom, 3% mortgage rates that they locked in prior to this year.
"The new normal for mortgage rates could be around 7% for a while," Yun added. "On a $300,000 loan, that translates to a typical monthly mortgage payment of nearly $2,000, compared to $1,265 just one year ago – a difference of more than $700 per month. Only when inflation is tamed will mortgage rates retreat and boost home purchasing power for buyers."
To read the full report, including more charts and methodology, click here [3].