Pending sales are trending lower, with a possible silver lining

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Pending home sales surged after a seven-month decline in May, gaining 0.7%. If it were baseball, we might now call it a “balk.” The National Association of Realtors® (NAR) reported this morning that its June Pending Home Sales Index (PHSI) plunged 8.6%. The index fell from 99.9 in May to 91.0, leaving it 20% lower than June 2021. NAR said the reversal came “as rising mortgage rates and house prices impacted potential buyers.”

The PHSI, based on new contracts for the purchase of existing residential units, is a leading indicator of completed sales of single-family homes, condominiums and co-op apartments over the next one to two months. An index of 100 equals the level of contractual activity in 2001.

“Contract signings to buy a house will continue to fall as long as mortgage rates continue to rise, as has happened this year so far,” said NAR chief economist Lawrence Yun. “There are indications that mortgage rates could reach or be very close to a cyclical peak in July. If so, ongoing contracts should also start to stabilize.

Analysts may have thought that the May PHSI was already signaling such stabilization. People interviewed by Econoday expected the index to decline only 1.0%. Trade economy had been slightly closer to the mark with a forecast of -2.1%.

According to NAR, buying a house in June was about 80% more expensive than in June 2019. Nearly a quarter of buyers who bought a home three years ago couldn’t do so now because they no longer earn the qualifying income to buy a home at the median price today.

Yun predicted a 13% decline in home sales this year. “With mortgage rates expected to stabilize near 6% and steady job creation, home sales should begin to pick up in early 2023,” he said.

Pending sales fell in all four major regions in June and all were down double digits from the previous year. They were especially gentle in the West.

The Northeast PHSI read 80.9, down 6.7% for the month and 17.6% on a yearly basis. The Midwest the index fell 3.8% to 93.7 in June, down 13.4% from a year ago.

PASS was 8.9% lower than South than in May and at 108.3 was down 19.2 from June 2021. The from West the index fell 15.9% and 30.9% from the previous two periods to 68.7.

NAR will release its existing home sales report for July on August 18.


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