Pending sales of existing homes dropped 20% in June compared with the same month a year ago, the National Association of Realtors said Wednesday.
That is the slowest pace since September 2011, with the exception of the first two months of the coronavirus pandemic lockdowns, when sales plunged briefly and then rebounded sharply.
On a monthly basis, pending home sales fell a wider-than-expected 8.6% in June. A Dow Jones survey of economists had predicted a 1% drop.
The steep declines coincided with a sharp jump in mortgage interest rates. The average on the 30-year fixed loan crossed over 6% in the middle of June, according to Mortgage News Daily. It started the year around 3%. Those high rates and inflation in the general economy are hitting buyer sentiment hard.
Nearly a quarter of home buyers who purchased a home three years ago would be unable to qualify to buy a median-priced home at today’s elevated prices, the NAR said.
“Contract signings to buy a home will keep tumbling down as long as mortgage rates keep climbing, as has happened this year to date,” said Lawrence Yun, NAR’s chief economist. “There are indications that mortgage rates may be topping or very close to a cyclical high in July. If so, pending contracts should also begin to stabilize.”
Contract signings fell in all four major regions across the country last month. The West saw the largest monthly decline, with pending home sales dropping by one-third in the past year, NAR reports.
Another report on sales of newly built homes in June, which are also counted by signed contracts, showed a similar drop, according to the U.S. Census. Builders are now offering more incentives to offload rising inventory, although prices are still higher than they were a year ago.
The NAR is now forecasting total sales for this year will be down 13%, but that they should start to rise in early 2023. But that upbeat forecast does depend on mortgage rate levels.
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