For the second month in a row, pending home sales down in July 2022
In 8 of the last 9 months, pending home sales have decreased from the previous months in July. According to the National Association of Realtors® (NAR), contract signings were down slightly last month, with only a 1% dip. In all, three of the four regions saw signings down less than 3%, with only the West up by 2.2%.
Compared to June’s pending home sales report, this month’s numbers were relatively stable. All four regions were down last month by more than 3% from May, with the West plummeting by 15.9% in contract activity from May.
"In terms of the current housing cycle, we may be at or close to the bottom in contract signings," said Lawrence Yun, NAR’s Chief Economist. "This month's very modest decline reflects the recent retreat in mortgage rates. Inventories are growing for homes in the upper price ranges, but limited supply at lower price points is hindering transaction activity."
The Pending Home Sales Index (PHSI) looks at contract signings to create an indicator of home sales in the next few months. In May, the index dropped below 100 for the first time in years, which is equal to the level of contract activity in 2001. With this report we see the index stands at 89.8 nationwide—a 19.9% decrease from this time last year.
- Northeast: down 1.9% to 79.3, down 15.4% from July 2021
- Midwest: down 2.7% to 91.2, down 13.4% from July 2021
- South: down 1.1% to 106.6, down 20.0% from July 2021
- West: up 2.2% to 70.0, down 30.1% from July 2021
Affordability a key factor
Current mortgage rates and home prices continue to be an obstacle for homebuyers, particularly first-time homebuyers. Housing affordability, basically the average cost of a monthly mortgage payment, continues to go up based on those two factors.
In June, the monthly mortgage payment on an average home with a 30-year fixed-rate mortgage and 20% down payment jumped 54% from a year ago, to $1,944. But with this month’s pending home sales report, NAR’s Yun sees a reason to be optimistic:
"Home prices are still rising by double-digit percentages year-over-year, but annual price appreciation should moderate to the typical rate of 5% by the end of this year and into 2023. With mortgage rates expected to stabilize near 6% alongside steady job creation, home sales should start to rise by early next year."