Pending home sales in the United States have experienced a significant decline, reaching an all-time index low last month, as reported by the National Association of Realtors (NAR). This forward-looking indicator of home sales, which is based on contract signings, fell by 4.6% month-over-month, leading to a new index reading of 70.6.
Analysts had anticipated a decline of only 0.9%, indicating a far worse scenario than expected based on a Bloomberg survey. On an annual basis, transactions have also plummeted by 5.2%, significantly exceeding the 1.1% drop that analysts had projected. The Chief Economist at NAR, Lawrence Yun, remarked, "It is unclear if the coldest January in 25 years contributed to fewer buyers in the market, and if so, we can expect greater sales activity in upcoming months.
However, it's evident that elevated home prices and higher mortgage rates have strained affordability." In January, mortgage rates fluctuated between 6.91% and 7.04%, further impacting housing affordability, as indicated by NAR's data. The monthly mortgage payment for a $300,000 home increased by $50 year-over-year, now totaling $1,590.
Yun noted, "Even a slight reduction in mortgage rates will likely ignite buyer interest, given rising incomes, increased jobs, and more inventory choices." This week, the weekly 30-year fixed mortgage rate has seen a slight decline to 6.76% from 6.85% the previous week, according to data from Freddie Mac.
The pending sales index has also seen sequential declines across the South, Midwest, and West regions. Furthermore, all four regions reported annual declines simultaneously. Last week, NAR highlighted that January existing home sales in the US fell at nearly double the pace that the market had anticipated, marking a clear signal of the current challenges in the housing market.
This downturn raises questions about future buying trends, particularly as more consumers feel the pressure of high home prices and persistent mortgage rates..