Contract Signings Slide—But Not Due to Falling Demand
March 25, 2022
Pending home sales fell in February for the fourth consecutive month, but the decline isn’t due to waning demand from eager home buyers. In fact, it’s just the opposite: Competition is growing fiercer, even as buyers face record-low inventory.
The National Association of REALTORS®’ Pending Home Sales Index—a forward-looking indicator of home sales based on contract signings—fell 4.1% month over month in February and 5.4% annually. All four major regions of the U.S. registered a decline in annual contract activity last month. “Buyer demand is still intense, but it’s as simple as ‘one cannot buy what is not for sale,’” says NAR Chief Economist Lawrence Yun.
Buyers are facing limited choices, higher home prices, and rising mortgage rates, which has led to a 28% annual increase in mortgage payments, according to NAR. Still, many aspiring home buyers are in a rush to get ahead of further rate increases that are likely on the horizon.
Yun is forecasting that 30-year fixed mortgage rates will likely average about 4.5% to 5% for the remainder of the year. He also is forecasting a 7% reduction in home sales in 2022 compared to 2021, partially due to higher costs pricing out more home buyers. “It is still an extremely competitive market, but fast-changing conditions regarding affordability are ahead,” Yun says. “Consequently, home sellers cannot simply bump up prices in the upcoming months but need to assess the changing market conditions to attract buyers.”