The US real estate market is under pressure.
This week’s data on new home sales and pending home sales reflected sharp declines from a year ago and showed the impact that rising interest rates continue to have on potential buyers.
Wednesday, the last pending home sales report from the National Association of Realtors showed contracts to purchase previously owned homes fell 1% from June to July and 19.9% from July 2021 to July 2022.
The pending home sales index – a measure of signed contracts on existing homes – fell to 89.8 last month, the lowest since the pandemic began. Contracts refused for the eighth time over the past nine months, according to the report.
Tuesday, new home sales data in July, sales fell 12.6% from the previous month and 29.6% from a year ago, signaling that housing demand continues to decline as the Federal Reserve continues to raise prices. interest rate to slow inflation.
“The housing market is in much worse shape than the Fed has been willing to admit,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a note after Tuesday’s data. “But politicians have made it clear that inflation is their primary objective and housing is collateral damage.”
Mortgage rates have stabilized in recent weeks, but the average 30-year fixed mortgage rate is 5.13%, based on Freddie Mac. Earlier this month, rates fell below 5% for the first time since April. At the start of 2022, the average 30-year fixed mortgage rate was 3.22%.
“The sharp decline in new home sales is another clear indicator that housing is in a recession,” said Danushka Nanayakkara-Skillington, NAHB Assistant Vice President for Forecasting and Analysis, said in a statement on Tuesday. “The combination of higher prices and higher interest rates is generating a noticeable slowdown in the housing market.”
Still, affordability remains a challenge, even as higher rates slow market activity.
Tuesday’s data showed the median price of a new home was $439,400 in July, down from $402,400 in June. Data from the National Association of Realtors showed the Home Affordability Index, a measure to assess whether a typical family qualifies for a mortgage, fell to a low. 33-year low in June.
“As for the current housing cycle, we could be at or near the bottom of contract signings,” NAR chief economist Lawrence Yun said in a press release on Wednesday. “This month’s very modest decline reflects the recent decline in mortgage rates. Inventory is rising for homes in the upper price ranges, but limited supply at lower prices is hampering transaction activity.”
However, the pressure on prices should ease in the coming months.
“The inverse relationship between new home supply and prices broke down in early 2021 as the lack of existing homes pushed buyers into the new home market and drove up prices,” Shepherdson wrote. “But now the supply of existing homes is also exploding as homeowners scramble to sell before prices drop too much. This will push homebuilders to cut new home prices. We expect steep monthly declines new home prices for the foreseeable future.”
Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv