Pending home sales declined for the second consecutive month in July, and for the eighth time in the last nine months, according to the National Association of REALTORS®. Three out of four major regions registered month-over-month decreases, though the West notched a minor gain. Year-over-year, all four regions saw double-digit percentage slides, the largest of which occurred in the West.
The Pending Home Sales Index (PHSI),* www.nar.realtor/pending-home-sales, a forward-looking indicator of home sales based on contract signings, slid 1.0% to 89.8 in July. Year-over-year, pending transactions sank 19.9%. An index of 100 is equal to the level of contract activity in 2001.
"In terms of the current housing cycle, we may be at or close to the bottom in contract signings," said NAR Chief Economist Lawrence Yun. "This month's very modest decline reflects the recent retreat in mortgage rates. Inventories are growing for homes in the upper price ranges, but limited supply at lower price points is hindering transaction activity."
In June, housing affordability plummeted to its lowest level since 1989, according to NAR. Accounting for a 30-year fixed-rate mortgage and a 20% down payment, the monthly mortgage payment on a typical home jumped to $1,944, an increase of 54%, or $679, from one year ago.
"Home prices are still rising by double-digit percentages year-over-year, but annual price appreciation should moderate to the typical rate of 5% by the end of this year and into 2023," Yun added. "With mortgage rates expected to stabilize near 6% alongside steady job creation, home sales should start to rise by early next year."
Pending Home Sales Regional Breakdown:
The Northeast PHSI dipped 1.9% from last month to 79.3, down 15.4% from July 2021. The Midwest index retracted 2.7% to 91.2 in July, a 13.4% decline from a year ago.
The South PHSI decreased 1.1% to 106.6 in July, a pullback of 20.0% from the previous year. The West index increased 2.2% in July to 70.0, down 30.1% from July 2021.
The National Association of REALTORS® is America's largest trade association, representing more than 1.5 million members involved in all aspects of the residential and commercial real estate industries.
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*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.
Pending contracts are good early indicators of upcoming sales closings. However, the amount of time between pending contracts and completed sales is not identical for all home sales. Variations in the length of the process from pending contract to closed sale can be caused by issues such as buyer difficulties with obtaining mortgage financing, home inspection problems, or appraisal issues.
The index is based on a sample that covers about 40% of multiple listing service data each month. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.
An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.
NOTE: Existing-Home Sales for August will be reported on September 21. The next Pending Home Sales Index will be on September 28. All release times are 10 a.m. Eastern.