"Multiple offers will soon dissipate and be replaced by much calmer conditions"
Home sales based on contract signings fell to a two-year low in March, suggesting a slower pace of housing activity as interest rates and home prices surge to record highs.
Pending home sales dipped 1.2% month over month to 103.7 – marking the fifth consecutive monthly decline and the lowest level since May 2020, according to the National Association of Realtors. Year over year, contract signings sank 8.2%.
“The falling contract signings are implying that multiple offers will soon dissipate and be replaced by much calmer and normalized market conditions,” said NAR chief economist Lawrence Yun. “As it stands, the sudden large gains in mortgage rates have reduced the pool of eligible homebuyers, and that has consequently lowered buying activity. The aspiration to purchase a home remains, but the financial capacity has become a major limiting factor.”
Read more: Housing market cooling down
According to Yun’s projections, the 30-year fixed mortgage rate will likely hit 5.3% by the fourth quarter before reaching 5.4% by 2023. He expects inflation to average 8.2% in 2022 but start moderating to 5.5% in the second half of this year. Unemployment rates will average 3.7%, Yun estimated, and GDP growth to accelerate by 2.8%.
As of March, higher mortgage rates and persistent price growth have driven an annual increase of 31% in mortgage payments.
“Overall existing-home sales this year look to be down 9% from the heated pace of last year,” Yun said. “Home prices are in no danger of decline on a nationwide basis, but the price gains will steadily decelerate such that the median home price in 2022 will likely be up 8% from last year.”
Costs have also pushed monthly rental payments up. Yun predicts this will lead to more renters exploring homeownership.
“Fast-rising rents will encourage renters to consider buying a home, though higher mortgage rates will present challenges,” Yun said. “Strong rent growth nonetheless will lead to a boom in multifamily housing starts, with more than 20% growth this year. I expect that to result in a boost to construction of less than 5%.”
