Pending home sales in the U.S. saw a slight uptick of 1.1% in September, according to the National Association of Realtors (NAR). Regions like the Northeast, Midwest, and South recorded monthly advances in transactions, while the West faced a decrease. However, despite this small increase, all four regions observed a year-over-year dip in deals.
"Despite the slight gain, pending contracts remain at historically low levels due to the highest mortgage rates in 20 years,” said Lawrence Yun, NAR chief economist. “Furthermore, inventory remains tight, which hinders sales but keeps home prices elevated.”
The NAR's Pending Home Sales Index (PHSI), which serves as a prognostic indicator for home sales grounded on contract signings, climbed 1.1% to hit 72.6 in September. In comparison to the previous year, these pending transactions witnessed an 11% fall. To provide context, a PHSI score of 100 mirrors the contract activity of 2001.
In its forecast, NAR anticipates the 30-year fixed mortgage rate to average 6.9% in 2023, with a subsequent drop to around 6.3% in 2024. Concurrently, the unemployment rate is projected to dip to 3.7% next year, only to ascend to 4.1% the year after.
In terms of sales, NAR predicts a 17.5% decline in existing-home sales in 2023, settling around 4.15 million, but expects a revival with a 13.5% surge in 2024, reaching approximately 4.71 million. Interestingly, despite the projected stability in the national median existing-home prices in 2023, they are predicted to experience a slight nudge upwards by 0.7% in 2024 to reach $389,500. Housing starts, meanwhile, are poised to undergo a 10.4% decrease from 2022 to 2023, ultimately rising by 6.5% in 2024.
Yun pointed out the silver lining, emphasizing the role of homebuilders.
“Because of homebuilders’ ability to create more inventory, new-home sales could be higher this year despite increasing mortgage rates. This underscores the importance of increased inventory in helping to get the overall housing market moving,” said Yun.
Newly constructed home sales are projected to grow by 4.5% in 2023 to 670,000, thanks to the added inventory in this market segment, and further augment by 19.4% in 2024, approximating 800,000. Correspondingly, the national median for new home prices is likely to decrease by 5.9% this year, settling at $430,800, and recover with a 3.5% boost next year to hit $445,800.
From a regional perspective, the Northeast PHSI rose by 0.8% to 63.1, marking a 12.7% drop from September 2022. The Midwest saw an expansion of 4.1% reaching 74.3, albeit being 9.2% less than the previous year. The South's PHSI increased marginally by 0.7% to 87.1, which is 10.7% less than last year, while the West's index slipped by 1.8% in September, reflecting a 12.9% year-over-year decline.
Ending on a hopeful note, Yun asserted, "Sales are expected to turn positive by early next year, with affordable regions and fast job-creating markets in better positions to recover, led by the Midwest and South."
