Pending home sales fell 20% in June from a year earlier, as mortgage rates soar

A “Sale Pending” sign outside a home in Discovery Bay, California, on Thursday, March 31, 2022.

David Paul Morris | Bloomberg | Getty Images

The National Association of Realtors said Wednesday that contracts signed to purchase existing homes fell 20% in June compared to the same month last year.

This is the slowest pace since September 2011, except for the first two months of the coronavirus pandemic shutdowns, when sales declined briefly and then rebounded strongly.

On a monthly basis, pending home sales fell 8.6% more broadly than expected in June. The Dow Jones survey of economists had forecast a 1% decline.

This decline coincided with a sharp jump in mortgage interest rates. The average 30-year fixed loan exceeded 6% in mid-June, according to daily mortgage news. The year started around 3%. High rates and inflation in the general economy weigh heavily on buyer sentiment.

“Signing contracts to buy a home will continue to fall as long as mortgage rates continue to rise, as they have this year so far,” said Lawrence Yun, chief economist at NAR. “There are indications that mortgage rates may be at their peak or very close to a cyclical high in July. If so, then the pending contracts should also begin to stabilize.”

The drop in sales was widespread, with the South and West seeing the worst of it. In the Northeast, pending sales are down 6.7% from May and down 17.6% from June 2021. Sales are down 3.8% for the month in the Midwest and down 13.4% annually.

In the South, sales are down 8.9% monthly and 19.2% from the previous year, and sales in the West are down 15.9% monthly and 30.9% from June 2021.

Another report on sales of newly built homes in June, which was also calculated through signed contracts, showed a similar decline, according to the US census. Builders are now offering more incentives to offload increased inventory, although prices are still higher than they were a year ago.

NAR now expects total sales for the year to fall 13%, but sales should start picking up in early 2023. Much of that, however, will depend on where mortgage rates end up.

“Looking forward, a slowdown in economic activity and a dip in business investment could moderate the pace of mortgage price gains, as investors shift provisions toward the safety of bonds,” said George Ratio, chief economist at Realtor.com. “Combined with the increase in housing supply, we could see better opportunities for homebuyers later in the year.”

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