The nation’s homebuying slowdown is intensifying.
They fell in July for the sixth time this year to the lowest level since the start of the pandemic, extending the housing market’s sharp downturn as high borrowing costs sideline prospective buyers.
Pending home sales are often looked to as a leading indicator of existing-home purchases given properties typically go under contract a month or two before they’re sold.
High home prices and a run-up in mortgage rates this year have pushed home ownership out of reach for many would-be buyers. The pullback has been swift and severe, with a range of measures pointing to weaker sales and construction activity.
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The monthly bill on a typical home with a 20% down payment rose to $1,841 in the second quarter, according to a separate NAR report out earlier this month. That’s up 32%, or $444, from the first quarter and a 50% jump from a year earlier.
“This month’s very modest decline reflects the recent retreat in mortgage rates,” Lawrence Yun, NAR’s chief economist, said in a statement. “Inventories are growing for homes in the upper price ranges, but limited supply at lower price points is hindering transaction activity.”
Contract signings decreased in three of four regions, led by a 2.7% drop in the Midwest. Pending home sales rose in the West.
Only 511,000 new homes were sold last month, at a seasonally adjusted annualized rate, down from a revised 585,000 in June. That’s the lowest sales number since January 2016. A year ago, 726,000 newly constructed homes were sold.
Meanwhile, the median price for a new construction home rose to $439,400, up from $402,400 the previous month.
New home sales have been trending lower as prospective buyers see their budgets stretched thin by long construction times, mounting costs and rising mortgage rates. The average interest rate for a 30-year, fixed-rate mortgage was above 5% for all of July, having risen more than two percentage points since January.
“Sales of new homes continue to crumple under the weight of high prices and higher mortgage rates,” said Robert Frick, corporate economist at Navy Federal Credit Union.
As inventories of new homes rise, a pullback in prices is probably coming, Frick said, although there’s a limit to how low they can go given the cost of materials, land and labor that get baked into builders’ costs.
“Given builders are pulling back plans to construct more homes, we won’t be building our way out of the current housing crisis for years,” said Frick.
The latest data continues to paint a challenging picture for the US housing market, said John Fish, CEO of Suffolk Construction and chairman of the Real Estate Roundtable.
“While the Federal Reserve attempts to reduce inflation, rising construction and land costs, supply chain disruptions and the labor shortage are contributing to the growing gap between housing demand and supply,” he said.
In the short term, Fish said, controlling inflation will be an important step toward improving the housing market and broader economy. But there are structural issues that need to be addressed for a successful economy in the long-term, Fish said, like developing land-use policies that are aligned with federal and local governments, developing more housing, and investing in technologies that will help lower the cost of construction to make development more attractive.
“We’re witnessing a housing recession in terms of declining home sales and home building,” Lawrence Yun, the chief economist of the National Association of Realtors, said last week after new data showed that existing home sales had fallen for the sixth month in a row. “However, it’s not a recession in home prices.”
This time, the housing market’s adjustment is likely to be far less severe than the correction in 2008 because there are still fewer homes for sale than households that would like to buy them, said Kelly Mangold of RCLCO Real Estate Consulting.
“Underlying demand for for-sale new homes remains,” she said.
And an upshot of the downturn for buyers is that there may be less competition and more price cuts.
“For those who are still motivated to buy, the market has become a less competitive space and buyers are not facing the bidding wars that characterized much of the earlier phases of the pandemic,” she said.
Bloomberg and CNN contributed to this report.
