Existing Home Sales

U.S. pending home sales fell 1.2% in March, the fifth consecutive month of declines, as rapidly increasing mortgage rates along with higher home prices and less inventory stymied buyers.

An index measuring signed contracts on previously owned homes fell to 103.7, the lowest reading since May 2020, according to a National Association of Realtors report on Wednesday.

There will be fewer bidding wars and a slower pace of price increases this year as home financing becomes more expensive, said Lawrence Yun, NAR’s chief economist. Mortgage rates rose last week to the highest level in 12 years, according to a Freddie Mac report.

"The falling contract signings are implying that multiple offers will soon dissipate and be replaced by much calmer and normalized market conditions,” Yun said. “As it stands, the sudden large gains in mortgage rates have reduced the pool of eligible homebuyers, and that has consequently lowered buying activity.”

Consumers are still eager to purchase homes, especially first time homebuyers, but prices are emerging as an obstacle, he said. Last year, the median U.S. price increased at a record pace of 17%, Yun said. That pace likely will slow to 8.2% this year, he said.

“The aspiration to purchase a home remains, but the financial capacity has become a major limiting factor,” Yun said.

Rates for a 30-year fixed home loan likely will average 5.1% in the current quarter, up from 3.1% in the final three months of 2021, and rise to 5.3% by the end of 2022, he said.

Inflation probably will average 8.2% in 2022 and 5.1% in 2023, Yun said.

The higher mortgage rates and sustained home-price appreciation led to a year-over-year increase of 31% in mortgage payments through March 2022, he said.

“Overall existing-home sales this year look to be down 9% from the heated pace of last year,” he said. “Home prices are in no danger of decline on a nationwide basis, but the price gains will steadily decelerate.”

Rental payments have also skyrocketed, mirroring the higher costs for both existing and new homes, pushing renters to seek ownership.

“Fast-rising rents will encourage renters to consider buying a home, though higher mortgage rates will present challenges,” Yun said.

Source: Yahoo Finance