Following a robust May, pending home sales declined in June. Though the desire for buyers to purchase a new home remains strong, skyrocketing prices are putting the dream out of reach for some buyers, economists in the housing industry said.
The overall pending home sales index fell 1.9% to 112.8 in June, according to the National Association of Realtors, which tracks the metric. (An index of 100 is equal to the average level of contract activity during 2001, the first year examined. The volume of existing-home sales in 2001 was within the range of 5 to 5.5 million.)
Regionally, pending home sales in the Northeast increased 0.5% to 98.5 on the index in June, an 8.7% rise from a year ago. In the Midwest, the index grew 0.6% to 108.3 last month, down 2.4% from June 2020. Pending home sales in the South fell 3.0% to an index of 132.4 in June, down 4.7% from June 2020. The index in the West decreased 3.8% in June to 98.1, down 2.6% from a year prior. May’s 8% increase was the highest jump for that month since 2005, according to NAR.
“For many Americans, the end of pandemic restrictions at the beginning of summer led to a shift in focus toward vacations, travel, and family reunions, which took attention away from real estate markets,” said George Ratiu, Realtor.com‘s senior economist.
The “seesaw” nature of pending home sales could indicate a turning point for the housing market, according to Lawrence Yun, NAR chief economist.
“Buyers are still interested and want to own a home, but record-high home prices are causing some to retreat,” Yun said. “The Midwest region offers the most affordable costs for a home and hence that region has seen better sales activity compared to other areas in recent months.”
Yun said he expects the 30-year fixed mortgage rate to increase to 3.3% by the end of the year, and to average 3.6% in 2022. He also said he expects existing-home sales to marginally decline to 5.99 million in 2022 from 6 million in 2021.
And, with demand easing and housing starts improving to 1.65 million — up from 1.565 in 2021 — Yun said he believes existing-home sales prices will increase at a slower pace to a median price of $353,500.
Mortgage applications increased 5.7% for the week ending July 23, and the 30-year fixed mortgage rate declining to its lowest level since February of this year, according to the latest report from the Mortgage Bankers Association. The 15-year rate fell to a record low last seen in 1990.
“In just the last year, increasing home prices have translated into a substantial wealth gain of $45,000 for a typical homeowner,” Yun said. “These gains are expected to moderate to around $10,000 to $20,000 over the next year.”
Ruben Gonzalez, Keller Williams chief economist, added that he believes absorption rates may slow in the coming months, allowing inventory to slowly climb back toward normal levels.
“We think interest rates and the economic recovery continue to support strong housing demand, but affordability is becoming a serious concern,” said Gonzalez. “If appreciation continues at levels that suggest market distortions, we could see Federal Reserve moves that aim to have some cooling effect on housing.”