Pending-home sales fell for the sixth month in a row in April, hitting their slowest pace in almost a decade, as rising mortgage rates and home prices increased the cost of a home purchase by 40% from a year ago, the National Association of REALTORS® reported, citing its Pending Home Sales Index.
Pending sales, in which the contract has been signed but the transaction has not closed, are considered a leading indicator. They fell 3.9% on a monthly basis last month and 9.1% on an annual one, according to a press release.
Looking ahead, NAR chief economist Lawrence Yun expects existing-home sales to slide by 9% in 2022 and home-price appreciation to slow to 5% by the end of the year.
Higher mortgage rates have raised monthly mortgage payments by as much as $500. The increase, already a burden, can become even more of an issue when combined with rapid inflation, Yun said.
The slowdown in sales is being driven by more than rising costs, however, First American chief economist Mark Fleming said. Potential sellers are facing a “prisoner’s dilemma” from rising interest rates, which discourage homeowners from selling, he said.
“Higher mortgage rates leave existing homeowners feeling ‘rate locked-in’ to their existing homes, and existing homeowners are the largest source of buyers, so the greater the rate lock-in effect, the fewer homes for sale and fewer home sales,” Fleming explained. “This means house-price appreciation should moderate from its current record-setting pace. Mortgage rates between 5-6% and house-price appreciation below 10%, eventually, mean a potential return to a not-so-new normal.”
Despite the slowdown in demand, the market appears well-positioned to absorb the impact of rising rates, Keller Williams Chief Economist Ruben Gonzalez said.
“We expect to see inventory finally start to accumulate slowly toward more normal levels and away from the unprecedented lows of the last couple of years,” he said. “We will be keeping a close eye on how inventory is accumulating the rest of the year as an indicator of how the market is evolving.”
Three of the four geographic regions saw decreases in contract activity from the previous month, with only the Midwest seeing an increase, with a 6.6% rise. Sales fell 16.2% in the Northeast, 4.7% in the South and 4.3% in the West.