Pending home sales continued their downward spiral in September, recording a 10.2% month-over-month decline that resulted in an index reading of 79.5, according to data released Friday by the National Association of Realtors.
This is the fourth consecutive month of declines. Pending home sales have now fallen in 10 of the last 11 months.
Economists predicted that pending home sales would drop by 4.0% in September.
Year over year, the PHSI was down 31.0%, marking the 16th consecutive month of annual drops. An index of 100 is equal to the level of contract activity in 2001.
“Persistent inflation has proven quite harmful to the housing market,” Lawrence Yun, NAR’s chief economist, said in a statement. “The Federal Reserve has had to drastically raise interest rates to quell inflation, which has resulted in far fewer buyers and even fewer sellers.”
Yun noted that new listings are down compared to a year ago, as many existing homeowners do not want to give up the 3.0% or lower mortgage rate they locked in at.
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“The new normal for mortgage rates could be around 7% for a while,” Yun added. “On a $300,000 loan, that 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. Only when inflation is tamed will mortgage rates retreat and boost home purchasing power for buyers.”
All four major U.S. regions recorded year-over-year decreases in contract signings. The Western region saw the largest drop at 38.7% to a reading of 62.7. Month over month, the South (97.0), the Northeast (64.2), the Midwest (80.7), and the West saw decreases of 8.1%, 16.2%, 8.8%, and 11.7%, respectively.
The pain is expected to continue for some time, said George Ratiu, senior economist at Realtor.com.
“As we look to the remainder of the year, we can expect interest rates to continue their upward trajectory,” he said. “The Federal Reserve’s monetary tightening has not yet made a dent in inflation, which means that the bank is expected to hike its policy rate further.”