Blog Articles, Single Family Residential

High Prices Are Causing Homebuyers to Retreat

Originally posted by The M Report | Eric C. Peck

The National Association of Realtors (NAR) has reported pending home sales declined marginally in June after recording a notable gain in May, falling 1.9% to 112.8 in June 2021. Year-over-year, signings also slipped 1.9%. A Pending Home Sale Index (PHSI) reading of 100 is equal to the level of contract activity in 2001. NAR also reported that contract activity was split in the four major U.S. regions from both a year-over-year and month-over-month perspective. The Northeast recorded the only yearly gains in June.

“Pending sales have see-sawed since January, indicating a turning point for the market,” said Lawrence Yun, NAR’s Chief Economist. “Buyers are still interested and want to own a home, but record-high home prices are causing some to retreat. The moderate slowdown in sales is largely due to the huge spike in home prices. The Midwest region offers the most affordable costs for a home and hence that region has seen better sales activity compared to other areas in recent months.”

Regionally, the Northeast PHSI increased 0.5% to 98.5 in June, an 8.7% rise from one year ago. In the Midwest, the PHSI grew 0.6% to 108.3 last month, down 2.4% from June 2020. In the South, the Index fell 3.0% to 132.4 in June, down 4.7% from June 2020, while in the West, the PHSI decreased 3.8% in June to 98.1, down 2.6% from one year ago.

“Contract signings declined in June, reversing the strong advance from May,” commented Senior Economist George Ratiu. “For many Americans, the end of pandemic restrictions at the beginning of summer led to a shift in focus toward vacations, travel, and family reunions, which took attention away from real estate markets.”

According to Yun, the 30-year fixed-rate mortgage (FRM) is likely to increase to 3.3% by the end of the year, and will average 3.6% in 2022. With the slight uptick in mortgage rates, he expects existing-home sales to marginally decline to 5.99 million (six million in 2021). Yun added that, with demand easing and housing starts improving to 1.65 million (1.565 in 2021), existing-home sales prices are expected to increase at a slower pace of 4.4% in 2022 (14.1% in 2021) to a median of $353,500.

“In just the last year, increasing home prices have translated into a substantial wealth gain of $45,000 for a typical homeowner,” Yun said. “These gains are expected to moderate to around $10,000 to $20,000 over the next year.”

Earlier this week, S&P Dow Jones Indices (S&P DJI) released the latest results for the S&P CoreLogic Case-Shiller Indices, which found for May 2021, home prices across the nation continued to increase, with a 16.6% annual gain in May, up from 14.8% in the previous month.

“The 16.6% gain is the highest reading in more than 30 years of S&P CoreLogic Case-Shiller data gain is the highest reading in more than 30 years of S&P CoreLogic Case-Shiller data,” said Craig J. Lazzara, Managing Director and Global Head of Index Investment Strategy at S&P DJI.

Further proof that it is indeed a seller’s market comes from Redfin who found that asking prices of newly listed homes were up 12% from the same time a year ago to a median of $361,700, up 0.5% from the four-week period ending July 4.

Originally posted by The M Report | Eric C. Peck

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