The National Association of Realtors (NAR) reported that their Pending Home Sales Index (PHSI) declined by 1.8 percent in October, hitting a two-year low. This is a stark contrast from the same period last year which experienced a 7.5 percent growth.
The report cites ongoing interest rate increases throughout the housing marketplace as the main culprit for the declining numbers. As mortgage rates continue to climb, homebuyers have been dissuaded from entering the market. NAR chief economist Lawrence Yun said, “Higher interest rates, in combination with and deteriorating affordability conditions, are holding potential buyers back.”
In particular, the Midwest region was hardest hit– experiencing a 12.3 percent dip in home sales compared to October of 2017. This marks the lowest reading since 2014. Even though the West was relatively unscathed, day-to-day activity still fell by 1.4 percent over the same period, a significant three-month low. Other regions observed declines as well, though none were as notable. The Northeast came in second with a 5.9 percent decrease, followed by the South at 0.2 percent and the Mid-West at -2.4 percent.
The lack of house inventory could be seen as another contributing factor. Yun said, “The lack of inventory on the lower-priced points, combined with the rise in interest rates, has put a greater strain on affordability and subdued what should have been a stronger sales pace.” Despite this, overall home prices have still climbed 5.1 percent over the last 12 months, indicating that the market has barely noticed the decline in sales activity.
All in all, it's clear that rising interest rates have hindered the once-hopeful momentum of the housing market. With the amount of inventory staying stagnant, buyers are being left in a difficult situation. Buyers are feeling the strain of high costs and many are opting out of buying altogether. Until interest rates start decreasing, it looks like the housing market will remain in a state of flux.
This article was contributed on Nov 13, 2023