BAM Key Details:
- The National Association of REALTORS® announced a drop in pending home sales for March 2023, with the Pending Home Sales Index (PHSI) declining by 5.2% to 78.9.
- Three U.S. regions posted monthly declines in pending sales, while the South increased.
- NAR’s forecast for 2023-2024 shows steady growth in existing home sales, with total sales for 2023 still falling 9.3% below 2022 before increasing by 15.4% in 2024.
Pending home sales declined month over month in March—the first decline since November 2022—according to a new report by the National Association of REALTORS® (NAR).
The Pending Home Sales Index (PHSI), a leading indicator of home sales, dropped by 5.2% to 78.9 from February to March, with monthly declines in three U.S. regions, while the South saw an increase in contract signings.
Pending sales nationwide fell year over year by 23.2%, with annual declines in all four regions. A PHSI of 100 is equivalent to the level of contract signings in 2021.
The lack of housing inventory is a major constraint to rising sales. Multiple offers are still occurring on about a third of all listings, and 28% of homes are selling above list price. Limited housing supply is simply not meeting demand nationally.
NAR forecasts for the rest of 2023
NAR’s predictions for the rest of 2023 include the following:
- Continued job growth, though at a slower pace
- Mortgage rates will fall, with the rate for the 30-year-fixed mortgage dropping to 6.0% this year—and to 5.6% in 2024.
- Housing starts will decline from 2022 by 7.3% to 1.44 million—and then climb 6.9% in 2024 to 1.54 million
- Existing home sales will steadily increase in the coming months, but the annual figure will still fall short of last year by 9.3%, falling to 4.56 million, before climbing back up 15.4% in 2024 to 5.26 million.
- Newly constructed home sales will grow from last year by 4.5% to 670,000—thanks to a greater supply of inventory in this segment of the housing market—and will climb another 11.9% in 2024 to 750,000.
- Compared to 2022, median existing-home prices will, for the most part, stabilize, with the national median existing-home price falling by 1.8% to $379,600 in 2023 and then rising by 2.8% to $390,000 in 2024.
- The pricey West region will see a decline in prices, while the affordable Midwest region will likely see a small increase.
- The median new home price will be 1.9% lower in 2023, compared to last year, falling to $449,100, but will increase by 4.2% to $468,000 in 2024.
Sales in the second half of the year should be notably better than the first half as job gains continue and more favorable mortgage rates are expected. Sales of new homes are already matching 2019 pre-COVID activity and are expected to increase in 2023, largely due to plentiful inventory in this segment of the market.
Regional breakdown of pending home sales (PHSI)
The Northeast PHSI declined by 8.1% from February to March to 66.6, a 24.3% annual drop from March 2022. The Midwest PHSI fell 10.7% month over month to 75.7 in March, falling 21.5% from a year ago.
The South PHSI saw a monthly increase of 0.2% in March, rising to 99.6—down 19.8% from a year earlier. The West dropped 8.0% from February to 59.4 in March, falling 32.2% year over year.
Top takeaways for real estate agents
Use this data—with special attention to pending sales data for your local market—as part of the whole picture you present to your clients and community to demystify the current market.
Sellers of well-priced homes in your area may see an uptick in offers and bidding wars, mainly because of low inventory levels and buyers re-entering the market because they can no longer wait for mortgage rates to decline further (or they don’t want to).
This isn’t a guarantee of more home sales activity, but if mortgage rates do decline, as NAR predicts, buyer demand will likely intensify and drive up home prices as competition heats up.
Keep an eye on the latest developments and articulate those changes clearly and often to educate the people in your community.
To that end, subscribe to the BAM Hot Sheet for a daily review of the housing market and any changes that could impact the people you serve.