The early-fall housing market shows signs of muted behavior, as pending home sales increased slightly from last month, but are overall down on an annual basis, according to the National Association of Realtors® (NAR).
NAR’s Pending Home Sales report for August shows that sales grew by 0.3% month-over-month, but they also decreased by 4.7% compared to the same period last year. This is up from July’s report where sales fell 2.3% on a monthly basis, but annual trends continue to tread downward.
“Buyers steadily entered into contracts in August even though mortgage rates increased,” NAR Chief Economist Lawrence Yun said. “However, the housing market is still sluggish, with contract signings below last year. This is due to higher mortgage rates offsetting the increased buying power created by job gains and income growth outpacing home price growth.”
Prior to the report’s release, Bright MLS Chief Economist Lisa Sturtevant stated that she expected the report to, “confirm that housing market conditions cooled significantly at the end of summer.”
After the Federal Reserve’s rate hike yesterday, Sturtevant also speculates that the “August slowdown is likely just a foreshadowing of a much slower housing market this fall.”
“The action by the Fed virtually guarantees that mortgage rates will remain at or above 7%, creating a psychological and financial barrier that will sideline even more prospective buyers in the coming months,” she stated.
The slight increase month-to-month came as a surprise to some experts. National Association of Home Builders (NAHB) Chairman Bill Owens described the challenges builders face in the wake of elevated inflation.
“Single-family starts unexpectedly increased in August, but higher mortgage rates, rising construction financing costs and affordability challenges continue to weigh on the market and limit momentum for new-home construction,” he said in a statement.
The subdued growth for monthly sales was likely caused by regional differences. Both the Northeast and Midwest fell on a monthly basis, by 4.2% and 1.6%, respectively. On the other hand, the South and West markets grew slightly in sales by 2.3% and 3%.
Overall, all four regions fell on an annual basis. The Northeast dropped by 3.9%, the Midwest 4.9%, the South 3.8% and the West fell the most by 6.7%.
On a local level, Southern and Midwestern cities dominated the top 10 metros in terms of annual gains in pendings:
- Richmond, Virginia (+11.3%)
- San Antonio, Texas (+6.6%)
- Memphis, Tennessee (+6.4%)
- Virginia Beach, Virginia (+5.1%)
- Cincinnati, Ohio (+4.7%)
- Austin, Texas (+4.2%)
- Birmingham, Alabama (+4.0%)
- Sacramento, California (+1.7%)
- Indianapolis, Indiana (+0.9%)
- St. Louis, Missouri (+0.2%)
Looking ahead, Realtor.com® Senior Economist Hannah Jones says the, “muted summer market could carry into fall, as mortgage rates show no signs of easing.”
“Markets have largely priced in Wednesday’s expected Fed rate hike, keeping upward pressure on rates rather than offering buyers relief,” she continued. “With borrowing costs unlikely to drop meaningfully before year-end, the fall advantage for buyers will come less from mortgage rate improvements and more from seasonal timing.”
Sharing Jones’ cautious sentiment, NAHB’s Senior Director of Forecasting and Analysis Jing Fu described builders’ expectations for the future.
“Year-to-date declines in single-family permits show builders remain cautious about future construction, a trend reflected in our recent builder surveys,” she commented. “Ongoing economic uncertainty and affordability challenges will continue to slow single-family construction in the months ahead.”
Century 21 CEO Mike Miedler took a slightly more positive approach to the latest home sales data.
“Today’s number gives us a useful baseline for how much demand was still making it to the contract stage before this week changed the economic picture again. This increase tells me there was still meaningful demand finding a way through a difficult affordability environment,” he continued in a statement. “Coupled with the rising interest rates announced yesterday, affordability is still difficult. Yet we know the demand is still out there. The challenge is making the whole financial picture work to translate interested buyers into sales.”
