Pending home sales fell 7.1% in August, according to the latest data from the National Association of REALTORS® (NAR). This reverses the slight 0.9% increase seen in July.
NAR’s Pending Home Sales Index (PHSI) for August registered at 71.8, reflecting a moderate level of activity (an index of 100 is equal to the 5 to 5.5 million level of contract activity in 2001). Year-over-year, however, pending transactions were down a drastic 18.7%
Regionally, the Northeast PHSI declined 0.9% to 62.6, down 18.2% YoY. The Midwest dropped 7% to 71.3, down 19.1% YoY. The South fell 9.1% to 86.5, down 17.6% YoY. The West fell 7.7% to 56.3, down 21.4% YoY.
The takeaways:
“Mortgage rates have been rising above 7% since August, which has diminished the pool of homebuyers,” said NAR Chief Economist Lawrence Yun. “Some would-be homebuyers are taking a pause and readjusting their expectations about the location and type of home to better fit their budgets.
“It’s clear that increased housing inventory and better interest rates are essential to revive the housing market,” he added.
“The Federal Reserve must consider the sharply decelerating rent growth in its consideration of future monetary policy,” concluded Yun. “There is no need to raise interest rates. Moreover, the government shutdown will disrupt some home sales in the short run due to the lack of flood insurance or delays in government-backed mortgage issuance.”
“Today’s data signal that home sales activity is unlikely to see a strong pick up in the next few months as limited options and significant affordability headwinds weigh on buyers,” commented realtor.com® Senior Economic Research Analyst Hannah Jones. “The tension between buyer demand and limited inventory pushed prices up year-over-year in August after two months of decline. Today’s housing market is characterized by the tension between buyers and sellers, as both parties consider their response to climbing mortgage rates and still-high home prices.
“Today’s home shoppers face considerable affordability headwinds, but many are planning a home purchase nonetheless. Even in a challenging market, housing market conditions typically line up for buyers in the early fall. For interested shoppers who need to and are able to participate in today’s market, we have found that the week of October 1 – 7 represents the best combination of housing market factors for buyers. The early fall market typically benefits from a build up in inventory left over from the summer as buyer demand fades, as well as below-peak prices. We have seen this shift in the last few weeks as the annual gap in active listings continues to narrow and prices remain below the year’s peak. Buyers should get to know their local market by spending time looking at their desired area on realtor.com® and saving a search so they are notified of every home that fits their criteria as soon as it hits the market.”
