In August, pending homes sales fell while new home sales unexpectedly surged. Pending home sales refer to sales of existing homes that are not yet complete but have a signed contract, while new home sales refer to transactions consisting of newly constructed homes. Home sales are down overall for the last year, but new home sales have surprisingly held steady since the beginning of last fall.
According to the National Association of Realtors (NAR), pending home sales fell in August by 2.0%, the third straight month of declining sales. On an annual basis, pending home sales fell by 24.2%. Lawrence Yun, Chief Economist at NAR, blames high-interest rates for the decline.
“The direction of mortgage rates – upward or downward – is the prime mover for home buying, and decade-high rates have deeply cut into contract signings,” said NAR Chief Economist Lawrence Yun. “If mortgage rates moderate and the economy continues adding jobs, then home buying should also stabilize.”
However, transactions didn’t decline across the board. Newly released U.S. Census data found that new home sales increased and were much higher than expected. In July, there were 532,000 new home sales. That number rose to 685,000 in August, representing a monthly increase of 28.8%. On a yearly basis, new home sales essentially remained flat, only decreasing by 0.1%. Experts did not expect new home sales to surge like this in August, and predict that the latest increase is likely an anomaly.
“New homes blew through estimates for August, but it’s likely an aberration caused by a dip in mortgage rates earlier in the summer,” Robert Frick, corporate economist at Navy Federal Credit Union, said in a statement. “The good news is price increases for new homes continue to cool, which points to a more reasonably-priced housing market starting as soon as next year,” he said.
Interest Rates Rise, but Home Prices Cool
The average 30-year fixed-rate mortgage rate increased significantly over the last several weeks, now sitting at about 6.7%. At this time, a ear ago, homebuyers could take out the same mortgage at an average rate of 2.88%. While interest rates keep rising, sales prices fell modestly between July and August, from $439,400 to $436,800. Despite declining in August, home prices are still up nearly 15% since August 2021.
The average monthly mortgage payment with 20% down is now 50% higher than it was a year ago. High-interest rates and rising home prices have combined to make housing affordability a national crisis, and NAR’s Lawrence Yun doesn’t expect things to turn around quite yet.
In a recent statement, Yun predicted that mortgage interest rates will soon reach close to 7% and will only decline when inflation is under control. Yun also estimates that home prices will finish 2022 up 9.6% but will only increase by 1.2% in 2023. Other firms predict negative home price growth next year. For example, Moody’s Analytics predicts that sales prices will change between -5.0% to 0% in 2023 but estimates that they could fall even more if a recession hits.
