What the data shows:
Contract signings for existing homes fell for the fourth consecutive month in February, with a monthly decline of 4.1%, due to a combination of rising mortgage rates, house prices and the consumer inflation. The monthly decline was propelled by declines in all regions except the Northeast. Pending home sales were 5.4% below levels a year ago.
Historically, pending home sales are a good predictor of completed sales, with a 30-45 day lag. This year’s record prices and very tight inventory are weighing on transactions, as we saw with the decline in new and existing home sales in February.
What this means for the housing market:
In February, homebuyers were greeted by record listing prices, as well as a spike in gasoline prices due to Russia’s invasion of Ukraine. Property markets have started 2022 on a high note, with many buyers locked in by last year’s blistering pace in expectation of a better year. However, housing dynamics have changed rapidly, creating a challenging environment. The number of homes for sale remains very low and continues to decline compared to last year, which keeps the pace of sales at a high level. In turn, list prices re-accelerated after the reprieve experienced in the fall of 2021, reaching a new high of $392,000 in February. For buyers looking for a home, the price hike came at the same time that accelerating inflation not only took more out of every paycheck, but also drove up mortgage rates. The net effect, especially for first-time buyers, was a reduction in their budgets, which only served to reduce the options available. As we enter the spring season, the markets remain clearly skewed in favor of the sellers. However, as mortgage rates edge closer to 5.0%, we are seeing the first signs of a shift in housing fundamentals as many home hunters have hit a ceiling on their ability to pay for a house.