One month ago, even before the recent surge in mortgage rates to the highest level since April 2014...
... we noted that pending home sales had stalled, rising a barely positive 0.2%,, and well below expected, a number which we predicted was set for much more pain in the months ago.
Moments ago this prediction was confirmed when the NAR reported that November pending home sales plunged to their lowest level in nearly a year, sliding 2.5% in the month well below the 0.5% consensus forecast (and below the lowest -1.5% estimate), "as the brisk upswing in mortgage rates and not enough inventory dispirited some would-be buyers."
On a year over year basis, the annual drop was the worst since August 2014.
Only the Northeast saw monthly and annual pending sales gains last month.
The Pending Home Sales Index,* a forward-looking indicator based on contract signings, declined 2.5 percent to 107.3 in November from 110.0 in October. After last month's decrease in activity, the index is now 0.4 percent below last November (107.7) and is at its lowest reading since January (105.4).
According to the NAR's perpetually cheerful chief economist, Lawrence Yun, the ongoing supply shortages and the surge in mortgage rates took a small bite out of pending sales in November. "The budget of many prospective buyers last month was dealt an abrupt hit by the quick ascension of rates immediately after the election,” he said. "Already faced with climbing home prices and minimal listings in the affordable price range, fewer home shoppers in most of the country were successfully able to sign a contract."
It gets worse: with 2017 at the doorstep, Yun says higher borrowing costs somewhat cloud the outlook for the housing market. This was evident in NAR's most recent HOME survey, which found that confidence amongst renters about now being a good time to buy has diminished since the beginning of the year1. The good news, according to Yun, is that the impact of higher rates will be partly neutralized by stronger wage growth as a result of the 2 million net new job additions expected next year.
"Healthy local job markets amidst tight supply means many areas will remain competitive with prices on the rise. Those rushing to lock in a rate before they advance even higher will probably have few listings to choose from," said Yun. "Some buyers will have to expand the area of their home search or be forced to delay in order to save a little more money for their down payment."
Existing sales are still expected to close out 2016 at a pace of around 5.42 million, which will eclipse 2015 (5.25 million) as the highest since 2006 (6.48 million). In 2017, sales are forecast to grow roughly 2 percent to around 5.52 million. The national median existing-home price is expected to increase to around 5 percent this year and 4 percent in 2017.
"Much more robust new home construction is needed to relieve inventory shortages and lessen the affordability pressures present throughout the country," added Yun.
The geographic breakdown showed pervasive weakness by region:
- The PHSI in the Northeast nudged forward 0.6 percent to 97.5 in November, and is now 5.7 percent above a year ago.
- In the Midwest the index declined 2.5 percent to 103.5 in November, and is now 2.4 percent lower than November 2015.
- South decreased 1.2 percent to an index of 118.7 in November and are now 1.3 percent lower than last November.
- The index in the West fell 6.7 percent in November to 101.0, and is now 1.0 percent below a year ago.
Expect much more pain for housing, which as Mark Hanson noted recently is the least affordable it has ever been for buyers who need a mortgage, in the coming months which will promptly spill over into all other areas of the economy.