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Pending Home Sales Continue Precipitous Drop

By Paul Bergeron

May 27, 2022 at 07:53 AM

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Existing sales will wane by 9% this year due to rising mortgage rates.

Pending home sales slipped again in April, as contract activity decreased for the sixth consecutive month, the National Association of Realtors reported.

Zonda, too, indicated a continued downward trajectory. Its New Home Pending Sales Index (PSI) for April 2022 showed pending sales rose month-over-month but remained down year-over-year.

The PSI came in at 150.4 for April, representing a 3.1% decrease from April 2021. The index is 13.6% below cycle highs.

Pending Contracts Decline 6th Consecutive Month

“Pending contracts are telling, as they better reflect the timelier impact from higher mortgage rates than do closings,” NAR’s chief economist Lawrence Yun said in prepared remarks. They are moving “at the slowest pace in nearly a decade.”

Yun forecasts existing-home sales to wane by 9% in 2022 and home price appreciation to moderate to 5% by year’s end, attributing that to rising mortgage rates.

The average rate on a 30-year fixed-rate mortgage was 5.25% last week, up from 3.1% on January 1, according to Freddie Mac.

Consumer Confidence ‘Being Tested’

“Changes to Federal Reserve policy and elevated levels of inflation act as headwinds to an otherwise strong housing landscape via the impact on the mortgage market,” Ali Wolf, Zonda’s chief economist, said in prepared remarks. “Higher mortgage rates have tested consumer confidence and ability to pay, as mortgage rates alone have pushed the monthly cost of owning up 30% since the start of the year.”

Wolf said pending new home sales trended above April 2021 levels in nine of 25 select markets Zonda tracks, an increase from five last month.

Zonda said that Denver increased the most on a year-over-year basis, rising 16.1% and Cincinnati grew the most month-over-month. Reports Inventory Rising’s weekly inventory data report from its chief economist Danielle Hale showed that new listings–a measure of sellers putting homes up for sale–were up 6% above one year ago, Bill McBride’s Calculated Risk blog reported.

“After several years of abnormal seasonality, it is heartening to see more new sellers in May, the period of the year where we tend to see the largest number of home sellers listing for the first time,” McBride said.

McBride said that seller confidence amid record high asking prices is driving the growth in the number of sellers this year compared to last year in seven of the past eight weeks.

Active inventory continued to expand as well, Calculated Risk reported. It rose 9% above one year ago. This indicated that in a few short weeks, there’s been a significant turnaround in the number of homes available for sale, going from essentially flat two weeks ago, to +5% last week, to +9% this week, McBride wrote.

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