Pending home sales in November 2022 fell to a near two-decade low, according to the latest data from the National Association of REALTORS® (NAR), coinciding with a near-term peak in mortgage rates and persistent inflation that has hurt consumer confidence.
Sales fell for the sixth consecutive month, a decrease of 4% from October, and were down a whopping 37.8% from last year.
“Interest rates…climbed at one of the fastest paces on record this year, which drastically cut into the number of contract signings to buy a home,” said NAR Chief Economist Lawrence Yun. “Falling home sales and construction have hurt broader economic activity.”
Lagging data from existing home sales showed that the real estate economy took a significant hit in the late fall and early parts of winter. This data on pending transactions indicates that the pain will be felt for at least a couple more months as many experts anticipate the ongoing “housing recession” will carry over into this year.
“High home prices, affordability challenges, and more rental options have led some prospective buyers to hang on the sidelines for longer than they anticipated,” Bright MLS Chief Economist Lisa Sturtevant stated. “The biggest decline in new pending sales continues to be in the West region, which includes some of the least affordable housing markets in the country.”
The index tracking pending home sales in the West slipped 0.9% from last month, down 45.7% from November 2021. The Midwest index decreased 6.6% in November, dipping 31.6% from one year ago. The South PHSI retracted 2.3% last month, fading 38.5% from the prior year. The Northeast index dropped by 7.9% in November, retreating 34.9% from November 2021.
“The Midwest region—with relatively affordable home prices—has held up better, while the unaffordable West region suffered the largest decline in activity,” Yun noted.
The current pullback cannot fully be explained by regular seasonality, with Yun recently pointing out that the market has already reached its usual 11% price decline from summer to winter.
But mortgage rates, which have been one of the largest roadblocks for real estate practitioners in recent months, might also offer some hope for the near future.
“There are approximately two months of lag time between mortgage rates and home sales. With mortgage rates falling throughout December, home-buying activity should inevitably rebound in the coming months and help economic growth,” he said.
The timing and speed of that rebound, as well as how quickly mortgage rates stabilize will depend largely on decisions by the Federal Reserve, which recently indicated it would hold interest rates higher for longer in an effort to tamp down inflation.
Sturtevant concluded, “Buyers that remain in the market are finding relatively few options. The number of new listings coming on the market is at a decade low in many local markets.”
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