Pending home sales—a leading indicator for housing market activity—plunged by a more than expected 20% in June compared to a year ago, according to new data from the National Association of Realtors on Wednesday, with experts warning that higher mortgage rates will continue to negatively impact demand.
Pending home sales, which measure signed contracts on previously owned and existing properties, fell 8.6% from May to June, a much sharper drop than forecast by analysts, who were expecting a 1% drop.
Sales fell 20% in June compared to the same month a year ago, as higher rates and surging inflation hurt new homebuyers and slowed housing market activity.
The drop in pending sales coincided with a sharp uptick in mortgage rates, with the average rate on a 30-year fixed loan surpassing 6% last month—up from 3% at the start of the year, according to Mortgage News Daily.
“The biggest factor behind the weakening housing market is the rapid rise in borrowing costs,” says LPL Financial chief economist Jeffrey Roach, who predicts “more downside to go in housing.”
All four major regions in the United States have seen major year-over-year declines in sales, according to the new data, with the South and West facing the biggest drops since May, of around 9% and 7%, respectively.
The National Association of Realtors now forecasts overall home sales will fall 13% in 2022, but should start to rebound by early 2023.
“Contract signings to buy a home will keep tumbling down as long as mortgage rates keep climbing, as has happened this year to date,” according to NAR chief economist Lawrence Yun. “There are indications that mortgage rates may be topping or very close to a cyclical high in July. If so, pending contracts should also begin to stabilize.”
Mortgage demand also continued to decline, falling for the fourth straight week in a row, according to new data from the Mortgage Bankers Association on Wednesday. Applications for home purchase loans fell nearly 2% from last week and remain roughly 18% lower than a year ago.