Spring is traditionally the busiest time of the year for realtors, but it’s increasingly looking like things could be a lot slower in the months to come.
Pending home sales in February were down 4.1% compared to January, the fourth straight month of declines. (Analysts had expected a 1% gain for the month.) While record low inventories were a big part of the reason for that fall, spiking mortgage rates and record high home prices are likely to continue weighing on the market.
Pending sales are viewed as an indicator of future closings, usually with a horizon of one or two months. And some analysts are adopting a bearish view on what lies ahead for the housing market.
“The housing market is cooling very rapidly, and sales are set to fall by 20 to 30% by mid-year,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “The writing is on the wall, in big, sharp, clear letters.”
Pantheon is estimating March existing home sales will fall to roughly 5.7 million, a 21-month low and says the first quarter of 2022 is “on track for a near-40% annualized plunge”.
Falling home sales don’t necessarily translate to falling prices, though. The most recent forecast from Zillow predicts the year-over-year rate of home price growth will hit 22% in May. That would represent an acceleration in home price growth.
In another bad sign for potential cooling of red-hot home prices, housing inventories continue to decline, and citing inventory imbalances, Bank of America has predicted a 10% appreciation in home prices this year. (U.S. Home prices are already up 18.8% over the past 12 months.) As of a month ago, other data pointed to a frenzied spring in the real estate market.
Pending home sales last month were down 5.4% compared with February 2021. Regionally, pending sales rose 1.9% over January in the Northeast, though they were down 9.2% from a year ago. The Midwest saw sales fall 6.0% from the previous month (a 5.2% decline from February 2021). Pending sales in the South were down 4.4% (and 4.3% annually). And in the West they slipped 5.4% for the month and 5.3% from a year ago.
Mortgage rates, meanwhile, continue to escalate at a breakneck pace. The average 30-year fixed rate loan currently stand at 4.71%, according to Mortgage News Daily. That’s 1.6% higher than it stood in December 2021.
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