Persistent inflation is proving “quite harmful to the housing market,” says NAR Chief Economist Lawrence Yun.
The housing market is quickly contracting as rising mortgage rates and stubbornly high inflation prompts more home buyers—and even sellers—to back away. The National Association of REALTORS®’ Pending Home Sales Index, a forward-looking indicator based on home contract signings, dropped for the fourth consecutive month in September, down 10.2% compared to August and a whopping 31% compared to a year earlier.
“Persistent inflation has proven quite harmful to the housing market,” says NAR Chief Economist Lawrence Yun. “The Federal Reserve has had to drastically raise interest rates to quell inflation, which has resulted in far fewer buyers and even fewer sellers.”
The number of active listings also is falling quickly as more homeowners grow reluctant to trade in the lower mortgage rates they secured in the last few years for today’s higher rates. “The new normal for mortgage rates could be around 7% for a while,” Yun says. “On a $300,000 loan, that translates to a typical monthly mortgage payment of nearly $2,000, compared to $1,265 just one year ago—a difference of more than $700 per month. Only when inflation is tamed will mortgage rates retreat and boost home purchasing power for buyers.”
NAR’s latest report also shows that all four major regions of the U.S. are seeing a sharp pullback in home sales, with pending home sales down about 27% or more on a year-over-year basis in each region. The West is seeing the largest yearly contraction in pending home sales, down 38.7% annually. However, the Northeast posted the largest month-over-month drop in September, with pending home sales down 16.1% compared to August, NAR reports.
Source: nar.realtor
