What the data shows:
Contract signings for existing homes fell for the fifth straight month in March, falling 1.2%. Mortgage rates rose from 3.76% at the start of the month to 4.67% at the end, pushing monthly payments on a median price home $400 higher than they would have been around the same time last year. The sharp rise in rates has been accompanied by record list prices and a continued decline in the number of homes for sale. The monthly decline was propelled by declines in all geographies except the Northeast. Pending home sales were 8.2% below levels a year ago.
Historically, pending home sales are a good predictor of completed sales, with a 30-45 day lag. This year’s record prices and very tight inventory are weighing on transactions, as we saw with the drop in sales of new and existing homes in March.
What this means for the housing market:
The spring housing market got off to an unpredictable start, reflecting weather conditions across much of the country, which alternated between heat waves and ice storms. Markets remain clearly tilted in favor of sellers due to the shortage of homes and the large number of buyers still determined to lock in predictable monthly payments as a hedge against inflation. However, the economic climate is changing as the Fed works to stem the price boom by reducing the availability of credit through higher interest rates. For consumers, increases in credit card, auto and mortgage rates compound the much higher prices they pay for gasoline, cars, clothing, food and services. At the end of each month, Americans find that there is less money left on each paycheck. We can expect these factors to lead to fewer transactions in the coming months as many early buyers find themselves out of the market.