Contract Signings Hit Slowest Pace in Nearly a Decade!
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May 26, 2022
The housing market is slowing: Pending home sales fell 3.9% in April, marking the sixth consecutive month for declines and the slowest pace in nearly 10 years. NAR’s Pending Home Sales Index—a forward-looking indicator of home sales based on contract signings—was down 9.1% in April compared to a year earlier.
Lawrence Yun, NAR’s chief economist, attributes the slowdown to the recent sharp rise in mortgage rates, which are adding considerably to buyers’ borrowing costs. Higher mortgage rates have increased the cost of purchasing a home by more than 25% compared to last year. In many cases, that could mean the higher mortgage payments are leading up to $500 more per month for borrowers. Further, higher home prices add another 15% to that figure, Yun says. Also, households are facing rapid inflation that is increasing everyday costs, like fuel and food.
While buyers face headwinds, current homeowners are seeing significant increases in equity. “The vast majority of homeowners are enjoying huge wealth gains and are not under financial stress with their home as a result of having locked into historically low interest rates, or because they are not carrying a mortgage,” Yun says. “However, in this present market, potential home buyers are challenged and thus may attempt to mitigate the rising cost of ownership by opting for a 5-year adjustable-rate mortgage or by widening their geographic search to more affordable regions.”
Also, Yun says home sales could stabilize in the coming months if mortgage rates moderate at the current level of 5.3% and job gains continue.
If rates climb to 6%, Yun forecasts that existing-home sales to slow by 9% in 2022. He predicts home price appreciation to moderate to 5% by the end of the year.
“Home prices appear in no danger of any meaningful decline,” Yun says. “There is an ongoing housing shortage, and properly listed homes are still selling swiftly—generally seeing a contract signed within a month.”
Source: National Association of REALTORS®