High mortgages rates are bringing homes sales to a screeching halt. Pending sales, a measure of signed contracts on existing homes, plunged for the fourth straight month, down 10.2% in September.
Year-over-year, pending transactions plunged by 31%, according to the National Association of Realtor’s Pending Home Sales Index. In August, pending sales fell 2%. “Persistent inflation has proven quite harmful to the housing market,” said NAR Chief Economist Lawrence Yun. “The Federal Reserve has had to drastically raise interest rates to quell inflation, which has resulted in far fewer buyers and even fewer sellers.”
It’s the largest month-to-month decline since May 2010 (if excluding lockdown months of March and April of 2020), according to NAR. High mortgage rates have severely limited the buyers’ purchasing power. On a $300,000 loan, the current 7% mortgage rate 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, says Yun.
“Only when inflation is tamed will mortgage rates retreat and boost home purchasing power for buyers,” he says. Total housing inventory at the end of September stood at 1.25 million units, down 2.3% from August and 0.8% from the previous year. Unsold inventory sits at a 3.2-month supply at the current sales pace – unchanged from August and up from 2.4 months in September 2021.
The new home listings are down compared to one year ago since many homeowners are unwilling to give up the rock-bottom, 3% mortgage rates that they locked in prior to this year, says Yun. Nationwide, about 60,000 home purchase agreements were called off in September, equal to 17% of homes that went under contract – the highest share on record aside from March 2020.