Pending Homes Sales Decline for Fourth Consecutive Month in February

The National Association of Realtors® (NAR) reported on Friday (3-25-22) that their Pending Homes Sales Index (PHSI), which is based on signed real estate contracts, not actual closings, for existing single-family homes, condominiums, and co-ops, declined -4.1% in February from January to a reading of 104.9. This marks the fourth consecutive month of declines. Contract signings were down in 3 out of 4 regions, with only the Northeast posting a gain. Year-over-year contract signings have declined -5.4%.

An index of 100 is equal to the level of contract activity in 2001.

In comments prepared to accompany the release of the February PHSI, Lawrence Yun, NAR’s chief economist said, “Pending transactions diminished in February mainly due to the low number of homes for sale. Buyer demand is still intense, but it’s as simple as ‘one cannot buy what is not for sale.”

Along with climbing home prices, now buyers must grapple with rising mortgage rates and noted that shoppers will likely want to lock in before rates increase further.

Yun continued, “It is still an extremely competitive market, but fast-changing conditions regarding affordability are ahead. Consequently, home sellers cannot simply bump up prices in the upcoming months but need to assess the changing market conditions to attract buyers. The surge in home prices combined with rising mortgage rates can easily translate to another $200 to $300 in mortgage payments per month, which is a major strain for many families already on tight budgets.”

Yun forecasts mortgage rates to be about 4.5% to 5% for the remainder of the year and expects about a 7% reduction in home sales in 2022 compared to 2021. “Home prices themselves are still on solid ground,” he added. “They may rise around 5% by year’s end and we should see much softer gains in the second half of the year.”