"It's not a tremendous surprise"
Pending home sales dropped in March, breaking three months of momentum, the National Association of Realtors reported Thursday.
NAR's pending home sales index (PHSI), a forward-looking indicator of home sales based on contract signings, fell 5.2% to a 78.9 reading in March. Year over year, pending transactions posted a 23.2% decline.
Kate Wood, home expert at NerdWallet, noted that it's not a tremendous surprise. "Mortgage interest rates rose in March, so it makes sense that fewer buyers signed contracts," she said. "Affordability is already a major challenge due to higher home prices, and every time interest rates increase, the situation gets harder for buyers."
The trade association expects the economy to continue adding jobs, but at a slower pace, and the 30-year mortgage rate will increase to 6% in 2023 and 5.6% in 2024. NAR also forecasts a decline in residential construction, with housing starts falling 7.3% annually this year to 1.44 million units before rising by 6.9% next year to 1.54 million.
"The lack of housing inventory is a major constraint to rising sales," said NAR chief economist Lawrence Yun. "Multiple offers are still occurring on about a third of all listings, and 28% of homes are selling above list price. Limited housing supply is simply not meeting demand nationally."
With a strong labor market and improving interest rates, NAR anticipates existing-home sales to drop 9.3% from a year ago to 4.56 million before improving by 15.4% in 2024 to 5.26 million units. New home sales will increase 4.5% annually to 670,000 and climb by another 11.9% to 750,000 in 2024.
Home prices will also stabilize, according to NAR. The median existing-home price will dip by 1.8% to $379,600 in 2023 and then increase by 2.8% to $390,000 in 2024. New home prices will go down by 1.9% to $449,100, followed by an improvement of 4.2% to $468,000.
"Sales in the second half of the year should be notably better than the first half as job gains continue and more favorable mortgage rates are expected," Yun said. "Sales of new homes are already matching 2019 pre-COVID activity and are expected to increase in 2023, largely due to plentiful inventory in this segment of the market."
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