Pending home sales tanked in August, reversing a two-month trend of increases.
NAR’s Pending Home Sales Index fell by 7.1% to a reading of 71.8 in July. An index of 100 is equal to the level of contract activity in 2001.
“Mortgage rates have been rising above 7% since August, which has diminished the pool of home buyers. Some would-be home buyers are taking a pause and readjusting their expectations about the location and type of home to better fit their budgets,” said Lawrence Yun, NAR chief economist. “It’s clear that increased housing inventory and better interest rates are essential to revive the housing market.”
Year-over-year, pending sales dropped by 18.7%. All four U.S. regions saw declines both month-over-month and year-over-year, with the South and West retreating the most.
Home prices have exploded since the beginning of 2023 as limited inventory kept competition high for the few homes for sale.
But the combination of sky-high rates and new record home price highs have forced even the most zealous buyers to reconsider. As a result, the number of sellers dropping their listing prices went up in September.
“The feeling for buyers right now is this: For the interest rate I’m paying, this home better be exactly what I want or the price better be negotiable,” Seattle Redfin Premier agent David Palmer said.
Sales should slow as the fall begins, giving buyers the upper hand in negotiations. But with student loan payments set to resume and inflation weighing on Americans’ budgets, buyers may stay on the sidelines through winter.
Though existing home sales remain in a slump, new construction is booming, leading to old and new houses costing basically the same and making them more attractive to homebuyers.
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