Story at a glance
- The number of homes under contract in the U.S. fell for the fourth straight month.
- Pending home sales, a forward-looking market indicator, declined by 10 percent in September.
- Year over year pending transactions dropped by 31 percent.
The number of homes under contract in the U.S. fell for the fourth straight month as mortgage rates surge to their highest level in decades.
Pending home sales, a forward-looking market indicator, declined by 10 percent in September, while year over year pending transactions dropped by 31 percent, according to data released Friday by the National Association of Realtors.
The Federal Reserve’s aggressive rate hikes targeting inflation have trickled down into the housing market, where mortgage rates climbed to over 7 percent this week for the first time since 2002. This has increasingly pushed buyers out of the market while leaving listed homes on the market longer.
“Persistent inflation has proven quite harmful to the housing market. “The Federal Reserve has had to drastically raise interest rates to quell inflation, which has resulted in far fewer buyers and even fewer sellers,” NAR chief economist Lawrence Yun said in a statement.
Yun said the lack of sellers can be linked to rising mortgage rates, which have more than doubled since last year, adding that sellers are unwilling to give up last year’s low rates.
And the mortgage rate increases may not let up for some time.
“The new normal for mortgage rates could be around 7% for a while,” Yun added. “On a $300,000 loan, that translates to a typical monthly mortgage payment of nearly $2,000, compared to $1,265 just one year ago – a difference of more than $700 per month. Only when inflation is tamed will mortgage rates retreat and boost home purchasing power for buyers.”
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The news follows a series of data showing a slowing market, including a drop-off in new home sales and rapid price deceleration.
Sales of new single-family homes in September fell by 10.9 percent to a seasonally adjusted annual rate of 603,000 units, according to data released by the Census Bureau on Wednesday.
Meanwhile, U.S. home prices saw a record slowdown in August, falling by 2.6 percent, according to the S&P CoreLogic Case-Shiller Index released Tuesday.
The shows a 13 percent annual gain in August for home prices, but a sharp 2.6 percent drop from July to August.
“As the Federal Reserve moves interest rates higher, mortgage financing becomes more expensive, and housing becomes less affordable. Given the continuing prospects for a challenging macroeconomic environment, home prices may well continue to decelerate,” Craig J. Lazzara, managing director at S&P DJI, said in a media statement.