Pending home sales – a leading indicator of housing market activity – fell 20% more than expected in June from a year ago, according to new data from the National Association of Realtors on Wednesday, with experts warning that rising mortgage rates will continue to negatively impact demand.
Pending home sales, which measure signed contracts on already owned and existing properties, fell 8.6% from May to June, a much steeper decline than analysts expected, who had expected a decline from 1 %.
Sales fell 20% in June from the same month a year ago as rising rates and soaring inflation hurt new home buyers and slowed housing market activity.
The drop in pending sales coincided with a sharp rise in mortgage rates, with the average rate on a 30-year fixed loan rising above 6% last month, from 3% at the start of the year, according to Mortgage News Daily.
“The biggest factor behind the weaker housing market is rapidly rising borrowing costs,” says Jeffrey Roach, chief economist at LPL Financial, who predicts “further downside in housing.”
According to the new data, all four major regions of the United States have seen significant declines in year-over-year sales, with the South and West facing the largest declines since May, of around 9%. and 7%, respectively.
The National Association of Realtors now forecasts that overall home sales will fall 13% in 2022, but should start to rebound in early 2023.
“Contract signings to buy a house will continue to fall as long as mortgage rates continue to rise, as has happened this year so far,” according to NAR chief economist Lawrence Yun. “There are indications that mortgage rates could reach or be very close to a cyclical high in July. If so, outstanding contracts should also start to stabilize.
Mortgage demand also continued to decline, falling for the fourth consecutive week, according to new data from the Mortgage Bankers Association on Wednesday. Applications for loans to purchase a home are down almost 2% from last week and remain around 18% lower than a year ago.
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