Existing US home sales may be set to fall during the spring buying season. Or at least if you believe pending home sales are a lead indicator (they are).

Contract signings plunged 5.2% in March, according to data released by the NAR on Thursday.

That was a very notable surprise versus consensus, which expected a small increase. The range of estimates, from two-dozen surveyed economists, was -5% to 2%.

It was the largest decline since September, when the Fed was in full-hawk mode following Jerome Powell’s terse Jackson Hole speech the prior month. At the time, mortgage rates were on their way to peaking above 7%.

The drop is easy to explain. Recall that new home sales jumped in March, according to the government, a development I attributed (correctly, I think) to a combination of scarce existing supply and builder incentives. People can’t buy existing homes that aren’t for sale. And although motivated sellers will sometimes offer incentives, they can’t buy your rate down by 150bps for all 30 years of your mortgage (some publicly-traded builders now offer a 4.99% fixed rate).

“The lack of housing inventory is a major constraint to rising sales,” NAR Chief Economist Lawrence Yun said Thursday, noting around a third of listed properties are still receiving multiple offers, while more than a quarter are selling above-list. “Limited housing supply is simply not meeting demand nationally,” Yun went on. He also flagged ample new (i.e., new construction) inventory.

For what it’s worth, the NAR expects mortgage rates to drop to around 6% later this year, and according to Yun, the US labor market will likely stay resilient. That combination should bolster buyers.

Still, the group expects a 9% drop in existing home sales for the full year. Prices, the NAR reiterated Thursday, should be “mostly stable,” with the median falling a little less than 2% to around $380,000. Updates released earlier this week showed prices rose in February on two prominent national indexes.

The South was the only region where pending sales rose in March. On a YoY basis, nationwide contract signings dropped 23.3%.