Pending home sales slid a staggering 7.1% in August
The decline could mark "the beginning of the end of this resilient housing market," according to one economist.
Key points:
- The August numbers are a sharp reversal from earlier in the summer, when pending sales were on the rise.
- All four national regions saw pending home sales drop from July to August, NAR reported, with the South experiencing the biggest decline.
- High mortgage rates have "diminished the pool of home buyers," said NAR Chief Economist Lawrence Yun.
If it feels like home sale transactions have been steadily falling in the last several weeks, there's some new evidence that backs this up.
According to the latest NAR data, national pending home sales fell a whopping 7.1% in August, a significant reversal after rising in June and July. Sales were off 18.7% year-over-year.
All four major regions — the Northeast, Midwest, South, and West — saw both monthly and yearly declines in pending home sales last month.
The slump in home sales comes as both home prices and mortgage rates — which hit a new high today — climbed through the summer months, making affordability a major challenge for many prospective homeowners and pushing buyers to the sidelines.
"Mortgage rates have been rising above 7% since August, which has diminished the pool of home buyers," NAR Chief Economist Lawrence Yun said in the report. "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."
Bright MLS Chief Economist Lisa Sturtevant concurred, predicting further slowing. "August may be the beginning of the end of this resilient housing market — at least for a while. Buyers are hitting affordability ceilings, causing some of them to sit out the market. For others, the higher mortgage rates and general economic uncertainty are simply making them more cautious. Either way, expect the number of home sales transactions this fall to be at a decade low."
The Northeast holds steady as sales in other regions plummet
While all regions witnessed a decline in August pending home sales, some parts of the country were more affected than others.
The South saw the biggest decline with a 9.1% month-over-month drop, while pending sales were down 7.7% in the West, 7% in the Midwest and just 0.9% in the Northeast.
On an annual basis, the West has seen the largest drop in pending home sales, which have fallen 21.4% since a year ago. Pending sales were down more than over 19% in the Midwest, 18.2% in the Northeast and 17.6% in the South in the last year.
Market conditions could remain challenging for the foreseeable future, particularly as the Fed has warned of one more rate hike before the end of the year. And a potential government shutdown could only lead to more market volatility, Yun suggested.
"The Federal Reserve must consider the sharply decelerating rent growth in its consideration of future monetary policy. There is no need to raise interest rates," Yun said. "Moreover, the government shutdown will disrupt some home sales in the short run due to the lack of flood insurance or delays in government-backed mortgage issuance."