Pending home sales sank in March as rate-sensitive buyers continued to skirt the market, according to the National Association of Realtors.
NAR’s Pending Home Sales Index declined by 5.2% between February and March. Year-over-year, it dropped by 23.2%.
All four regions saw pending sales fall YOY, and three of the four saw contract signings shrink. Signings increased slightly in the South as the region continues to attract buyers chasing affordability and sunny weather.
NAR Chief Economist Lawrence Yun pointed to tight inventory as the main hindrance to sales.
“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,” he said.
“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. 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.”
Rates averaged 6.55% this week, the highest level in more than a month, but purchase applications increased regardless as spring shoppers get accustomed to the high-rate environment.
By the same token, new home sales increased by more than expected in March, though they were down significantly YOY.
It’s possible that as mortgage rates moderate, buying new homes will become more expensive, not less.
“Rather than lower their prices, homebuilders have been buying down mortgage rates for customers… So if market rates fall to [5%, 5.5%], builders can forgo the buy-downs and just boost profit without doing anything to change affordability,” Conor Sen, founder of Peachtree Creek Investments, recently argued in Bloomberg.
“We’d probably see production increases, but that additional supply wouldn’t arrive on the market until the second half of 2024, at best. That’s good in the long run, but not much help to anyone looking to buy in the next year.”
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