High mortgage rates are bringing home sales to a screeching halt. Pending sales, a measure of signed contracts on existing homes, plunged for the fourth straight month, down 10.2% in September.
Year-over-year, pending transactions plunged by 31%, according to the National Association of Realtors’ Pending Home Sales Index. In August, pending sales fell 2%.
“Persistent inflation has proven quite harmful to the housing market,” said the association’s Chief Economist Lawrence Yun. “The Federal Reserve has had to drastically raise interest rates to quell inflation, which has resulted in far fewer buyers and even fewer sellers.”
It’s the largest month-to-month decline since May 2010 (if excluding the lockdown months of March and April of 2020), according to the association.
High mortgage rates have severely limited the buyers’ purchasing power.
Mortgage rates top 7%:Is a fixed or an adjustable rate the best bet right now?
‘Awful’ housing shortage:The US housing shortage will likely get worse with no apparent end in sight.
On a $300,000 loan, the current 7% mortgage rate translates to a typical monthly mortgage payment of nearly $2,000, compared to $1,265 just one year ago – a difference of more than $700 per month, says Yun.
“Only when inflation is tamed will mortgage rates retreat and boost home purchasing power for buyers,” he says
Total housing inventory at the end of September stood at 1.25 million units, down 2.3% from August and 0.8% from the previous year. Unsold inventory sits at a 3.2-month supply at the current sales pace – unchanged from August and up from 2.4 months in September 2021.
The new home listings are down compared to one year ago since many homeowners are unwilling to give up the rock-bottom, 3% mortgage rates that they locked in prior to this year, says Yun.
Nationwide, about 60,000 home purchase agreements were called off in September, equal to 17% of homes that went under contract – the highest share on record aside from March 2020.
Homebuilder confidence fell for the 10th straight month in October, marking the lowest level since May 2020, after the pandemic hit the economy, according to the National Association of Home Builders.
Pending home sales regional breakdown
The Northeast Pending Home Sales Index descended 16.2% from last month to 64.2, a decline of 30.1% from September 2021. The Midwest index retracted 8.8% to 80.7 in September, down 26.7% from one year ago.
The South Pending Home Sales Index faded 8.1% to 97.0 in September, a drop of 30.0% from the prior year. The West index slipped by 11.7% in September to 62.7, down 38.7% from September 2021.
Swapna Venugopal Ramaswamy is a housing and economy correspondent for USA TODAY. You can follow her on Twitter @SwapnaVenugopal and sign up for our Daily Money newsletter here.
Leave a Reply