NewsPending Home Sales Continue to Fall in March

Pending Home Sales Continue to Fall in March

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The National Association of Realtors (NAR) released data today showing that pending home sales fell for the fifth straight month in March. While home prices continue to appreciate rapidly, the latest NAR report signals that the housing market isn’t as hot as it was in Spring 2021. 

“The falling contract signings are implying that multiple offers will soon dissipate and be replaced by much calmer and normalized market conditions,” said Lawrence Yun, NAR’s chief economist. “As it stands, the sudden large gains in mortgage rates have reduced the pool of eligible homebuyers, and that has consequently lowered buying activity.”

Yun continued, summing up the housing market’s main problem in a single sentence. “The aspiration to purchase a home remains, but the financial capacity has become a major limiting factor.”

With average interest rates on a 30-year fixed-rate mortgage topping 5.0%, more homebuyers simply can’t afford a home, especially with highly elevated sales prices. Yun expects mortgage interest rates to average around 5.3% by the end of 2022, a slight increase from the current levels of 5.11%. 

According to NAR, the recent jumps in mortgage interest rates pushed the average monthly mortgage payment up by 31% compared to a year ago. In real dollar terms, the average homeowner has to pay around $400 more per month on a median-priced home versus the same time in 2021.

Despite America’s severe housing shortage, Yun expects that single-family home construction will increase by no more than 5%. Yun sees a greater increase in construction among multifamily buildings. “Fast-rising rents will encourage renters to consider buying a home, though higher mortgage rates will present challenges,” Yun said. “Strong rent growth nonetheless will lead to a boom in multifamily housing starts, with more than 20% growth this year.”

Yun expects that existing sales will be down 9% this year compared to 2021 levels, which will help cool down prices a bit. “Home prices are in no danger of decline on a nationwide basis,” he said, “but the price gains will steadily decelerate such that the median home price in 2022 will likely be up 8% from last year.”

Regional Data

The Pending Home Sales Index (PHSI) is NAR’s indicator of home sales based on contract signings. An index of 100 is equal to the level of contract activity in 2001. Nationally, PHSI fell 1.2% to 103.7 in March, with year-over-year transactions falling 8.2%. 

The Northeast is the only region to see positive growth in March (4.0%) to 89.3, with a 9.2% year-over-year decline. The Midwest index dropped 6.1% to 94.7 in March, dropping 4.8% from March 2021. The South and West saw a monthly decrease of 0.9% (to an index of 125.8) and 0.2% (to an index of 89.8), respectively, with 9.5% and 8.4% decreases from last year.

 

Tyler Williams
Tyler Williams
Tyler graduated from Virginia Commonwealth University in 2017 with a Bachelor's degree in Urban and Regional Studies. Currently based in Los Angeles, he works as a freelance content writer and copywriter for companies in real estate, property management, and similar industries. Tyler's main professional passion is writing about critical issues affecting big and small cities alike, including housing affordability, homelessness, inequality, and transportation. When he isn't working, he usually plans his next road trip or explores new neighborhoods and hiking trails.

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