One key measure of housing activity fell to the lowest level in more than two decades in September, as higher mortgage rates are keeping buyers at bay.
Pending home sales, which measure the number of signed contracts on existing homes, slumped 7.3% in September from August and were down 11.3% from the prior year, according to data released Tuesday by the National Association of Realtors . The report is but the latest confirmation that the housing market is cooling—and particularly in once-hot markets in the South and West.
To blame for weakening conditions are “fast-rising” mortgage rates, according to Lawrence Yun, chief economist of the Washington, D.C.-based trade group. Since late-February, the average 30-year fixed-rate mortgage has been rising, but the move was particularly sharp in September, when it surged from about 6.9% to as high as 7.6%, according to Mortgage News Daily .
“Although job growth and income gains can support home purchases, housing affordability is more affected by changes in mortgage rates,” Yun said in a statement .
While there may be reason to be optimistic that mortgage rates could be topping out—that’s because they’ve already risen more than the Federal Reserve’s short-term interest rate hikes—home buyers could be grappling with other concerns, according to Yun. “Increasing energy prices and the resulting inflationary pressure are highly uncertain.”
The pending home sales report marked the lowest nationwide reading for this series since it launched in 2001, according to reporting by Mortgage Professional America . The declines were even steeper in the West and South, while even the strongest markets—places like Nashville or San Francisco —saw declines in signed contract activity.
MORE SIGNS OF HOUSING WEAKNESS
A separate report pointed to a slowdown in activity on the opposite side of the spectrum: Home construction .
Housing starts, a measure of new residential construction, fell 5.2% in September from August, according to a report released Tuesday by the U.S. Census Bureau. This gauge of building activity fell 7.4% year-over-year, a slump that might not be so shocking given concerns among buyers about affordability .
Finally, sentiment among homebuilders has also soured. A monthly gauge of sentiment fell to the lowest level in 14 years, according to a report released Monday by the National Association of Home Builders.
As with home buyers, many of the same challenges—rising mortgage rates, higher gas prices and broader inflation —are weighing on sentiment among builders, according to Bill Owens, chairman of the Washington, D.C.-based trade group. Home builders must also contend with other factors like higher costs for construction loans, building materials, and immigration enforcement activity in their markets that could cause construction delays.
Combined, these supply-side constraints and affordability challenges that are keeping buyers at bay are making builders cautious, added Robert Dietz, chief economist of the National Association of Home Builders. “Demand persists, but higher mortgage rates, elevated construction costs and weaker consumer confidence are keeping more buyers on the sidelines.”
