Pending home sales in the US fell more than expected in April, data out Thursday showed.
The 3.9% decline was nearly twice as large as the forecasted drop, although it was well short of the most pessimistic estimate from more than two-dozen economists.
It was the sixth consecutive monthly decline (figure below).
Just one of four regions saw an increase. In the Northeast, contract activity plunged more than 16%.
“Pending contracts are telling, as they better reflect the timelier impact from higher mortgage rates than do closings,” Lawrence Yun, NAR’s chief economist, said, in a press release. “The latest contract signings… are at the slowest pace in nearly a decade.”
The data came two days after government figures showed new home sales slumped nearly 17% last month, a stunning decline that punctuated a string of disappointing data.
Read more: New Home Sales Dive As Prices Go Parabolic
Mortgage applications fell 1.2% in the week ended May 20, despite a slight decrease in mortgage rates, the MBA said this week. At 5.46%, rates remain “well above what borrowers were used to over the past two years,” Associate Vice President of Economic and Industry Forecasting, Joel Kan, remarked.
Yun underscored the point. “Escalating mortgage rates have bumped up the cost of purchasing a home by more than 25% from a year ago, while steeper home prices are adding another 15% to that figure,” he said Thursday, noting that for some would-be borrowers, the combined impact translates to mortgage payments that are as much as $500 higher. That simply isn’t tenable when prices for food, gas and electricity are all up sharply.
Needless to say, the burden falls almost entirely on potential buyers — by definition. “The vast majority of homeowners are enjoying huge wealth gains,” Yun remarked, before noting that given challenging market conditions, those who missed out on the pandemic-era bonanza may be considering adjustable-rate mortgages and/or scouring the country for more affordable locales.
Freddie Mac data showed mortgage rates fell the most in two years last week (figure above), but the preceding surge took borrowing costs to the highest in more than a decade, insult to injury for buyers already staring at cartoonish price increases.
For now, the balance of evidence plainly suggests the market has peaked. The May FOMC minutes made mention of active MBS sales once balance sheet runoff is well underway.
Cooling home prices are one avenue down which the Fed can drive to rein in inflation, although the lag between increases in property prices and shelter costs means it’s too late (familiar figure on the left, below).
Even Toll Brothers (the country’s leading luxury homebuilder) admitted that demand, while “still solid,” has “moderated from the unprecedented pace of the past two years as buyers adapt to higher mortgage rates and other macro-economic conditions.”
The company reported solid quarterly results earlier this week, another reflection of America’s yawning economic divide, which is manifesting in a disparity between the fortunes of companies which cater to higher-end customers and those which serve the middle-class. CEO Douglas Yearley was quick to note that “many fundamental drivers of housing demand remain firmly in place.” He cited demographics and the supply-demand imbalance.
As ever, the NAR’s Yun tried to be optimistic. As long as rates stabilize and the labor market remains robust, home sales will find support, he said Thursday. “Home prices in the meantime appear in no danger of any meaningful decline.”
