Pending home sales fell 1% in July, set back by rising mortgage rates and prices, in yet another indication the pandemic-era housing boom has ended, the National Association of Realtors reported on Wednesday.
The dip was below forecasts of a 2.5% drop and well below the 8.9% decline in June, originally estimated at 8.6%.
“In terms of the current housing cycle, we may be at or close to the bottom in contract signings,” said NAR Chief Economist Lawrence Yun. “This month’s very modest decline reflects the recent retreat in mortgage rates.”
Meanwhile, “Inventories are growing for homes in the upper price ranges, but limited supply at lower price points is hindering transaction activity,” Yun added.
Yun held out hope the market could improve if mortgage rates hold steady or decline further, while more sellers bring homes onto the market.
“Home prices are still rising by double-digit percentages year-over-year, but annual price appreciation should moderate to the typical rate of 5% by the end of this year and into 2023,” Yun added. “With mortgage rates expected to stabilize near 6% alongside steady job creation, home sales should start to rise by early next year.”
Political Cartoons on the Economy
After posting record sales levels and prices during the pandemic, the housing sector has now slowed significantly for both new and existing homes. On Tuesday, the Census Bureau said that new home sales fell 12.6% in July and are down 29.6% from a year ago. Meanwhile, inventories of homes are starting to build.
“Contract risings for existing homes are highlighting that buyers have reached the limit of their financial wherewithal to handle the impact of high inflation, property prices, and interest rates,” George Ratiu, senior economist and manager of economic research at Realtor.com, said ahead of the report’s release.
“However, sales of existing homes have been on a sharp decline, accompanied by an equally significant drop in sale of new houses,” Ratiu added.
Ironically, the fall in sales and some slowdown in what had been record price appreciation, may be causing would-be buyers to take a pause and wait for even better deals in the future. The effect of the Federal Reserve’s campaign to raise interest rates to thwart inflation is also a factor dampening enthusiasm among home buyers.
“With interest rate hikes expected to continue for several more months, we will see real estate demand remain subdued,” Ratiu added.
Lisa Sturtevant, Bright MLS chief economist, said it was premature to say the housing market is in a “recession,” which the National Association of Home Builders did last week when it released a report showing builder confidence fell to its lowest level since May 2020.
“After two years of double-digit price growth, fierce competition among buyers, and offers sometimes tens of thousands of dollars over list price, the housing market is resetting to a more sustainable future,” she said.
Housing is a key component of the economy and along with the job market slowing a bit, it could have broader implications for the Fed going forward. While there has been some data showing inflation may have peaked in the second quarter, the question is whether the Fed will want to keep raising interest rates to reach its stated target of an annual inflation rate of 2%.
“We are slowing, the world is slowing but we are not in a recession,” says Bob Doll, chief investment officer at Crossmark Global Investments.
The Fed is holding its annual summer symposium at Jackson Hole, Wyoming, this week and Chairman Jerome Powell is set to speak on Friday when he is expected to update the central bank’s outlook for monetary policy.
“If 2% is really their goal, they are not going to stop,” he adds. “The Fed may decide to raise rates until something goes bump in the night.”