Pending Home Sales Decline

Market Impact: Pending Home Sales Decline

In January, pending home sales experienced a significant 4.9% drop from the previous month, as reported by the National Association of Realtors (NAR). This decline, the largest since August 2023, is attributed to rising mortgage rates, which are pushing potential buyers out of the housing market.

Insightful Indicators

Pending home sales serve as a crucial indicator of the future direction of existing-home sales. The 8.8% decrease from last year, coupled with the unmet Wall Street expectations of a 1.5% increase in January, paints a clear picture of the current market conditions.

Interest Rates Surge

The noticeable shift in the housing market coincides with the gradual increase in mortgage rates, climbing to 7% at the end of January. This rise impacts buyers' purchasing power, with even minor increases influencing affordability. For instance, a $400,000 home under a 7% rate would require an annual income of $108,440 for comfortable affordability.

Forecast and Trends

Looking ahead, the downward trend in purchase mortgage applications reflects the high mortgage rates persisting at over 7% by the end of February. This trend suggests that sales activity may see a continued slowdown in the upcoming months.

Expert Commentary

Chief economist Lawrence Yun acknowledged the robust job market and record-high total wealth due to stock market and home price gains. Despite these favorable economic conditions for homebuying, consumers are notably sensitive to changes in mortgage rates impacting sales.