Real Estate

Is the Housing Market in Crisis? The pending home sales suggest that an end may be near.


Pending home sales—a leading indicator for housing market activity—fell less than expected last month in a potential sign that sales may soon stop collapsing as mortgage rates settle below recent highs, according to new data released Wednesday, but even if sales stop plunging, experts still aren’t sure how soon the market will recover.

Here are some key facts

The National Association of Realtors’ pending home sales index, which measures home sales based on contract signings, ticked down 1% to 89.8 in July, with transactions falling 19.9% year over year, according to a Wednesday release.

Lawrence Yun, NAR chief economist, said that this “very modest” decrease suggests that the housing market may be “at or near the bottom in contract signs.” This is due to the recent retreating mortgage rate rates. They are currently up about 2 percent year-over-year, but have fallen down to 5.7% from a peak at more than 6% earlier in the summer.

NAR reported that housing affordability has been at its lowest point since 1989. In June, record prices and rising rates caused the mortgage payment for a typical home to jump from $679 to $1944 to June.

However, the affordability crisis has reduced demand. The pending home sales rate is now 27% lower than the October peak. Experts predict that there will be a housing crash soon.

Pantheon Macro’s chief economist stated that home sales would likely reach a ceiling before the end, but that no recovery is possible since a greater-than-usual number of buyers are pulling out of contracts. Last month, brokerage Redfin reported that buyers were cancelling sales at their highest rate in over two years.

NAR believes home sales will increase in the coming year. But that assumes mortgage rates remain stable at current levels, and job creation is steady.

What to Watch

Pending home sales can be a good indicator of the sales prospects over the next month or so. That is approximately how long it usually takes to complete sales once contracts have been signed.

The Key Background

The housing market has been portrayed in a complex light by a variety of data. High savings and low interest rates drove record growth in home sales and prices during the pandemic, but the Federal Reserve’s attempts to reduce inflation by raising interest rates have abruptly curtailed demand this year—even as prices have kept creeping up. “We’re witnessing a housing recession in terms of declining home sales and home building; however, it’s not a recession in home prices,” Yun said last week.

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Due to rising mortgage rates, Pending Home Sales plunge in June (Forbes)

Housing Market Collapse Steeps – New Home Sales Keep Plunging as Inventory Soars To Their Highest Level Since 2009 (Forbes)

A record low in home sales drives prices down (Forbes)

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