Pending home sales fell more than expected in the US last month, data out Wednesday showed.
It was the latest evidence to support the contention that record-high property prices and sharply higher mortgage rates are beginning to weigh on the market.
Sales dropped 8.9% YoY and 1.2% MoM in March. Consensus expected decreases of 8.1% and 1%, respectively.
The index fell to the lowest in almost two years, thanks to what counted as a fifth consecutive decline (figure above).
There’s no mystery here. “As it stands, the sudden large gains in mortgage rates have reduced the pool of eligible homebuyers, and that has consequently lowered buying activity,” NAR chief economist Lawrence Yun said.
He expects mortgage rates to hit 5.4% by 2023. I suppose I’d gently note that we’re only 29bps away, and it’s only April (simple figure below).
Inflation, Yun said, will average 8.2% this year despite moderation in the second-half. Through March, the combination of surging mortgage rates and sky-high prices resulted in mortgage payments that were almost one-third higher versus Q1 2021, the NAR noted.
Data out Tuesday showed home prices hit new records in February just before mortgage rates took off in earnest. Government figures, meanwhile, suggested no abatement in March, when the average price of a newly-built home rose to almost $524,000.
Mortgage applications fell last week to three-year lows as borrowing costs neared 13-year highs. Refi activity was the weakest since December of 2018 and down 70% from the same week last year. The average rate for 30-year fixed conforming loans jumped 17bps to 5.37%.
Joel Kan, Associate Vice President of Economic and Industry Forecasting at the Mortgage Bankers Association, didn’t mince words. “Prospective homebuyers have pulled back this spring, as they continue to face limited options of homes for sale along with higher costs from increasing mortgage rates and prices,” he said, adding that “the recent decrease in purchase applications is an indication of potential weakness in home sales in the coming months.”
The writing is on the wall. If you can’t see it, don’t worry. Because Yun read it aloud on Wednesday: “The aspiration to purchase a home remains, but the financial capacity has become a major limiting factor.”
Still, Yun doubts prices will decline in aggregate. “Home prices are in no danger of decline on a nationwide basis,” he said.
A below-average condo in a declining neighborhood sold for $500k in my city. The Fed is on a mission to stamp out wage growth. Prices will fall.