After declining every month since February, the forward-looking metric of pending home sales saw a slight uptick in June, rising a fractional 0.3% as markets appear to be rebalancing around higher interest rates and minimal price appreciation.
Though the increase was small, the timing—right in the dog days of summer—is sparking some hope that real estate could begin climbing back to a normal or even boom market in the near future.
“The recovery has not taken place, but the housing recession is over,” said National Association of REALTORS® (NAR) Chief Economist Dr. Lawrence Yun in a statement. “The presence of multiple offers implies that housing demand is not being satisfied due to lack of supply. Homebuilders are ramping up production and hiring workers.”
The latest data from NAR was still decidedly mixed, with declines in two of four census regions. But with hopes that the Federal Reserve will hold rates steady after a 25-basis point hike this month, and at least some positive indicators from homebuilders, there are some reasons to expect a market on the upswing for the second half of 2023.
“With consumer price inflation calming close to the Federal Reserve’s desired conditions, mortgage rates look to have topped out,” Yun added. “Given the ongoing job additions, any meaningful decline in mortgage rates could lead to a rush of buyers later in the year and into the next.”
Even a small rebound in pending sales is especially positive at this time of year, according to Bright MLS Chief Economist Dr. Lisa Sturtevant, because activity normally would taper off before the start of a new school year.
“Traditionally, the housing market slows a bit during the summer largely because the end of the school year and summer vacations take prospective homebuyers out of the market,” she explained. “Overall pending sales activity is still significantly below last year’s levels, as constrained inventory, higher mortgage rates and summer travel suppressed buyer activity.”
But with home sales still far below pre-pandemic levels, there is still a long way to go, with NAR predicting 4.38 million existing homes selling in 2023—a 12.9% decrease from last year, and far below the 2019 mark of 5.34 million. Yun said that a significant turnaround will largely hinge on inventory.
“It is critical to expand supply as much as possible to widen access to home buying for more Americans,” he said. “Home prices will be influenced by how much inventory is brought to market. Increased homebuilding will tame price growth, while limited construction will lead to home price appreciation outpacing income growth.”
And again, there is some positive movement on this front in terms of new construction starts and new-home sales—even though these make up only a small portion of overall transactions. NAR is predicting a 12.3% increase in new-home sales this year after construction data surprised economists back in June, with new home prices shrinking to meet affordability needs.
The imbalance between supply and demand (which remains almost as intense as during the pandemic) has also propped up prices, as NAR predicted that existing home prices would remain essentially flat before a marginal upswing (2.6%) next year.
Mortgage rates, which are also depressing inventory as existing homeowners cling to their locked-in low rates, will shrink somewhat this year, according to NAR, but will not reach earlier predictions of under 6%.
As has been the case through much of the housing correction, pending sales data showed an uneven recovery across the country. The Northeast and Midwest saw moderate increases from the previous month, 0.6% and 4.3%, respectively. The South and West both ticked down, with the South falling 1.4% and the West by a flat 1%.