Pending home sales declined 8.6% from May nationwide, as rising mortgage rates and housing prices have begun to affect potential buyers, according to a recent report by the National Association of Realtors (NAR).
The numbers coincide with the U.S. Federal Reserve raising its benchmark interest rate by 75 basis points on Wednesday—the second increase in a row of that size—as elevated inflation continued nationwide.
“Inflation remains elevated, reflecting supply and demand imbalances
related to the pandemic, higher food and energy prices, and broader price
pressures,” the Fed said in a statement after a two-day policy meeting,
adding that the central bank is “highly attentive to inflation risks.”
Meanwhile, according to the California Association of Realtors (CAR), home sales slipped as existing, single-family home sales totaled 344,970 in June 2022, on a seasonally adjusted annualized rate, down 8.4 percent from May, and down 20.9 percent from June 2021.
June’s California statewide median home price was $863,790, down 4.0% percent from May and up 5.4% percent from June 2021. Year-to-date statewide home sales were down 10.9 percent in June, according to the CAR. This was a significant drop from the revised record-high of $900,170, which was recorded in May, while the June 2022 price was 5.4 percent higher than the $819,630 recorded in June of 2021, according to the CAR.
According to the report, changes in the median home price were due partly to a change in sales in June, as the number of luxury home sales dipped. The share of million-dollar home sales dipped as sales in the higher-price segment dropped 8.3 percent from the prior month, after a long , steady rise for four consecutive months.
Sales of homes priced $2 million and up, sank 17.9 percent from May 2022, said the CAR.
Meanwhile, the sub-$500,000 market, of which there may be few in the San Gabriel Valley, increased 2.1 percent on a month-to-month basis in June. Incoming numbers for July could show sharp drops in pending sales in the upper-price segments, which would affect statewide median prices in the upcoming months.
With the West feeling the most impact and the largest monthly decline, sales retreated in all four major regions of the US. Pending sales in the West dropped by nearly a third, compared to 2021, said, the report, while contract signings dropped by double digits in each region.
The Pending Home Sales Index (PHSI), which looks at home sales based on contract signings, dipped 8.6% down to 91.0 in June, while year-over-year transactions shrank 20.0%.
(An index of 100 is equal to the level of contract activity in 2021.)
NAR Chief Economist Lawrence Yun pointed to rising mortgage rates, saying this week, “Contract signings to buy a home will keep tumbling down as long as mortgage rates keep climbing, as has happened this year to date,” but also added, “There are indications that mortgage rates may be topping or very close to a cyclical high in July. If so, pending contracts should also begin to stabilize.”
In actual terms, according to the NAR, buying a home in June of 2002 cost 80% more than in June 2019. In fact, said the NAR report, 25% of buyers who purchased a home three years ago would be unable to do so now because they no longer earn the qualifying income to buy a median-priced home today.
Those figures may or may not bode badly for the rest of 2022, said Yun, adding, “Home sales will be down by 13% in 2022, according to our latest projection.”
But, he added, “With mortgage rates expected to stabilize near 6% and steady job creation, home sales should start to rise by early 2023.”