A drop in pending home sales could signal further declines in existing home sales this year.
Tim Boyle/Getty Images
Existing home sales could be headed for an extended slowdown—and the reason has nothing to do with waning demand, according to the National Association of Realtors.
The trade group’s seasonally-adjusted pending home sales index—a gauge of future home sales based on contracts signed but not closed—fell 10.6% in February from January. That marks the biggest month-over-month decline since April 2020, in the early days of the Covid-19 pandemic.
The problem is a low supply of homes for sale, which remained at a historically-low level of 1.03 million units at the end of February, according to the group.
Wednesday’s data could signal that the recent decline in existing home sales will continue in coming months if supply remains tight. The seasonally adjusted rate of existing home sales, the trade group’s gauge of closed home sales, fell 6.6% in February from the previous month. That is the gauge’s first decline since November and its biggest month-over-month drop since May 2020. (Existing home sales were, however, still up from a year earlier.)
“The demand for a home purchase is widespread, multiple offers are prevalent, and days-on-market are swift but contracts are not clicking due to record-low inventory,” said Lawrence Yun, the trade group’s chief economist, in a release. “If there were a larger pool of inventory to select from—ideally a five- or a six-month supply—then more buyers would be able to purchase properties at an affordable price.”
February’s report also snapped a streak of year-over-year index increases. Pending home sales declined 0.5% from Feb. 2019, the first such decrease in eight months, the National Association of Realtors said.
The dip comes amid renewed worries that rising prices and mortgage rates will put increased pressure on home affordability, but Yun says rates have yet to cut into home buyer demand. “Demand, interestingly, does not yet appear to be impacted by recent modest rises in mortgage rates,” he said.
Write to [email protected]
