Aug 01, 2023
Modest Surge Breaks Three-Month Stagnancy in Pending Home Sales
Explore the slight recovery in June's pending home sales after a three-month lull, and understand what this means for future trends in the housing sector.
Unpacks the Latest Housing Sector
After experiencing a slump for three consecutive months, pending home sales experienced a minor upturn in June. According to the National Association of Realtors® (NAR), its Pending Home Sales Index (PHSI), a key indicator for the housing sector, increased by 0.3 percent. This change is attributed to heightened activity in the Northeast and Midwest regions.
As of February, the PHSI stood at 83.2, but this figure decreased to 76.8 by June, representing a fall of 15.6 percent since May 2022. The PHSI, calibrated to 100 in 2001 to represent that year's average contract activity, is based on signed contracts for the purchase of existing homes.
NAR Chief Economist Sees Light at the End of the Tunnel
In response to the small increment, NAR's Chief Economist Lawrence Yun remained optimistic. "Although recovery is not yet in full swing, the housing recession has ended,” Yun stated. He added that the existence of multiple offers indicates a demand that isn't being met due to insufficient supply, encouraging homebuilders to increase production.
Yun anticipates that the 30-year fixed-rate mortgage will average at 6.5 percent in 2023, and 6.0 percent in 2024. He further noted, “Given the nearing of consumer price inflation to the Federal Reserve’s preferred conditions, mortgage rates appear to have peaked. With ongoing job growth, any significant decrease in mortgage rates could trigger a rush of buyers later this year and into the next.”
This assumption aligns with the forecast of a 12.9 percent reduction in existing home sales in 2023, down to 4.38 million, but then a 15.5 percent rebound to 5.06 million units in 2024. The median existing-home price nationwide is projected to stay steady, with a slight decrease of 0.4 percent to $384,900 in 2023, before a 2.6 percent bounce back to $395,000 in 2024.
What's on the Horizon for Housing
Price fluctuation will be seen regionally; the expensive West will witness price reductions, while the more affordable Midwest will likely experience a modest increase. Yun emphasizes, “It's crucial to expand supply as much as possible to increase homebuying accessibility for more Americans."
With regards to housing starts, a drop to 1.47 million units (-5.3 percent) is predicted from 2022 to 2023, followed by a 5.4 percent rise to 1.55 million in 2024. Moreover, new home sales are projected to rise by 12.3 percent to 720,000 this year as inventory builds up, and expand further by 100,000 units in 2024. National median new home prices will fall by 1.9 percent to $449,100, then increase by 4.2 percent to $468,000 in 2024.
In summary, June's modest increase in the PHSI indicates a turning point in the housing sector. Despite regional differences, the future looks promising with increased supply, which will provide more Americans with homebuying opportunities and stabilize the market.
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