Pending home sales fell by nearly 5 percent in January amid rising mortgage rates, with the Midwestern and Southern parts of the U.S. hit the hardest by the slowing market, according to the National Association of Realtors (NAR).
The Midwest saw pending home sales, a forward-looking indicator for sales, drop by nearly 8 percent last month, while the South saw declines of more than 7 percent. On a yearly basis, pending home sales in the South were down by 9 percent, while the Midwest saw a close to 12 percent drop.
The Northeast saw improved sales of .8 percent for the month, and on a yearly basis they fell by 5.5 percent. Meanwhile, the West saw a half-percent jump for the month, but it was 7 percent lower than a year ago.
But overall, sales of homes are struggling. On a yearly basis, pending transactions were down nearly 9 percent as mortgage rates rose to above 7 percent.
“The job market is solid, and the country’s total wealth reached a record high due to stock market and home price gains,” Lawrence Yun, the NAR’s chief economist, said in a statement.
“This combination of economic conditions is favorable for home buying,” he continued. “However, consumers are showing extra sensitivity to changes in mortgage rates in the current cycle, and that’s impacting home sales.”
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On Thursday, Freddie Mac reported that mortgage rates rose to their highest level in two months, after declines to start the year from an 8 percent peak in the fall. A 30-year fixed-rate mortgage ticked up close to 7 percent for the week ending Thursday.
“Mortgage rates continued their ascent this week, reaching a two-month high and flirting with seven percent yet again,” Sam Khater, Freddie Mac’s chief economist, said in a statement.
“The recent boomerang in rates has dampened already tentative homebuyer momentum as we approach the spring, a historically busy season for homebuying,” Khater said.
NAR’s Yun said that job growth in the South and the Rocky Mountain areas did not help with sparking sales, even though demand is elevated.
“Long-term housing demand is increasing more significantly in these regions. However, the timing and number of purchases will largely depend on the prevailing mortgage rates and inventory availability,” he said.
The pending home sales data follows underwhelming numbers—even though they registered slightly higher for January—for new home sales, released earlier this month. Buyers are struggling to afford to buy homes as prices are elevated and mortgages are expensive.
This year’s outlook for the housing market will hinge on the trajectory of prices and the cost of home loans, housing economists say.
“While sales of newly built homes are trending in a positive direction, higher rates and elevated prices continue to pose affordability challenges that may leave potential homebuyers on the sidelines,” Yun said.
Uncommon Knowledge
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