Signed contracts to buy existing homes in the US unexpectedly dropped in March, the first decline since November 2022 as the lack of supply hampered sales activity during the spring buying season.
The National Association of Realtors’ index of pending home sales fell 5.2% to a reading of 78.9 in March, according to data released on Thursday, far from the gain of 0.8% that Bloomberg economists predicted. On a yearly basis, pending transactions plunged by 23.2%.
The measure, a leading indicator of the housing market's health, underscores how inventory shortages are quickly becoming the big driver in the market, eclipsing changing mortgage rates, which slipped in March amid turbulence in the banking sector.
“The lack of housing inventory is a major constraint to rising sales,” NAR Chief Economist Lawrence Yun wrote in a press release. “Multiple offers are still occurring on about a third of all listings, and 28% of homes are selling above list price. Limited housing supply is simply not meeting demand nationally.”
Contract signings fell in three out of the four regions month over month. Pending sales slid 8.1% in the Northeast, 10.7% in the Midwest, and 8.0% in the West. Only the South registered a monthly increase in March of 0.2%. Versus a year ago, pending home sales dropped in all regions.
Forward looking, the NAR anticipates that the economy will continue to expand at a slower pace, while the 30-year fixed mortgage rate will fall to 6.0% this year.
“Sales in the second half of the year should be notably better than the first half as job gains continue and more favorable mortgage rates are expected,” said Yun. But the turnaround in existing-home sales will still fall short from last year's results.
NAR expects existing-home sales to drop by 9.3% year over year to 4.56 million, before increasing by 15.4% in 2024 to 5.26 million. The association also forecasts that median existing-home prices will decline by 1.8% in 2023 to $379,600, and then rise by 2.8% in 2024 to $390,000.
"Because contract signings are an early stage in the home sale process, today’s index further solidifies that idea and gives some sense of what the recovery might look like," Realtor.com Chief Economist Danielle Hale wrote in a statement. "If current economic conditions persist, with elevated mortgage rates and home prices amid scarce inventory, the market is likely in for a long, slow climb," Hale added.
It's all about inventory
The pending sales report is the latest datapoint this week to highlight how a dearth of for-sale properties is helping to prop up prices and push buyers into the new-home market.
On Tuesday, two separate housing indexes showed home prices unexpectedly rose in February month over month, while the Census Bureau reported that new home sales grew in March, besting estimates.
PulteGroup's fiscal first-quarter results also topped expectations, the homebuilder reported Tuesday, as first-time homebuyers snapped up new houses amid softer mortgage rates and a lack of supply of pre-owned homes.
In fact, the NAR predicts that newly constructed home sales will increase from last year by 4.5% in 2023 to 670,000 and increase by another 11.9% in 2024 to 750,000.
“Sales of new homes are already matching 2019 pre-COVID activity and are expected to increase in 2023," Yun said, "largely due to plentiful inventory in this segment of the market.”
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Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv
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