Pending home sales in the U.S. experienced a significant decline last month as high mortgage rates discouraged both buyers and sellers from entering into deals. The National Association of Realtors' Pending Home Sales Index dropped 7.1% to 71.8 in August, a much steeper decline than the 0.8% drop that analysts had predicted. Year over year, pending transactions are down 18.7%.
The rise in mortgage rates above 7% since August has resulted in a smaller pool of potential home buyers, according to Lawrence Yun, the NAR's chief economist. Many prospective buyers are reassessing their expectations regarding the location and type of home that fits their budgets. Meanwhile, sellers who locked in lower rates are choosing to stay put, exacerbating the ongoing inventory shortage that has been driving up home prices since the start of the pandemic.
Additionally, sales of new homes also unexpectedly dropped in August, falling 8.7% to a seasonally adjusted annual rate of 675,000 units, according to data from the Commerce Department. This decline suggests that the increase in mortgage rates is pushing many potential buyers out of the market, leading to a slowdown in demand and a decrease in new home prices.
The median price for a new home fell to $430,000 in August, though it remains significantly higher than pre-pandemic levels. The number of available homes on the market at the end of July was down by more than 9% compared to the previous year and down 46% from pre-pandemic levels.
Redfin also reported that the median monthly mortgage payment reached an all-time high of $2,632 during the four weeks ending September 10. The average interest rate for a 30-year fixed-rate mortgage has remained above 7% and hit a 23-year high of 7.41% last week.
Lawrence Yun emphasizes the importance of increased housing inventory and better interest rates to revive the housing market. These factors are seen as vital for attracting more buyers and stimulating activity in the housing sector.