Nationwide, pending home sales collectively have dipped for two consecutive months according to July data from National Association of Realtors (NAR). While the West region registered a month-over-month gain in contract activity, the other three major U.S. regions reported drops, and all four regions saw transactions decrease year-over-year, NAR reports.
“The market may be starting to cool slightly, but at the moment there is not enough supply to match the demand from would-be buyers,” said Lawrence Yun, NAR’s Chief Economist. “That said, inventory is slowly increasing and home shoppers should begin to see more options in the coming months."
Some of the more-unusual trends observed earlier in the year are beginning to wane, and the market shows some sign of forthcoming stabilization.
“Homes listed for sale are still garnering great interest, but the multiple, frenzied offers—sometimes double-digit bids on one property—have dissipated in most regions,” Yun said. “Even in a somewhat calmer market, a number of potential buyers are still choosing to waive appraisals and inspections.”
As of July, 27% of buyers bypassed appraisal and inspection contingencies. By refraining from these evaluations, in most cases, buyers are looking to accelerate the homebuying process, Yun explained.
Regionally, month-over-month, the NAR Pending Home Sales Index for the Northeast area fell 6.6% to 92.0 in July, a 16.9% decrease from a year ago. In the Midwest, the index dropped 3.3% to 104.6 last month, down 8.5% from July 2020.
Pending home sales transactions in the South declined 0.9% to an index of 130.9 in July, down 6.7% from July 2020. The index in the West rose 1.9% in July to 99.8, but still down 5.7% from a year prior.
Yun forecasts that mortgage rates will start to inch up toward the end of the year. "This rise will soften demand and cool price appreciation."
"In just the last year, increasing home prices have translated into a substantial wealth gain of $45,000 for a typical homeowner," he said. "These gains are expected to moderate to around $10,000 to $20,000 over the next year."
Says Yun, the 30-year fixed mortgage rate is likely to increase to 3.3% by the end of the year, and will average 3.6% in 2022.
With the slight uptick in mortgage rates, he expects existing-home sales to marginally decline to 5.99 million, compared 6 million in 2021.
With demand easing and housing starts improving to 1.65 million compared to 1.565 in 2021, existing-home sales prices are expected to increase at a slower pace of 4.4% in 2022—than 2021's 14.1%—to a median of $353,500.