Pending Home Sales Fall to Lowest Since July 2020 as Mortgage Costs Rise

By Geoffrey Smith 

Investing.com -- The number of home sales waiting to go through in the U.S. fell to its lowest since July 2020, as soaring prices and worsening affordability hit the number of transactions.

The National Association of Realtors said its index of pending home sales, which measures the change in the number of home sales awaiting closure while under contract to be sold, fell to 103.7 from 105.0 in February, its fifth straight monthly drop.  

The figures are further evidence of the housing market starting to lose its froth as the cost of borrowing to buy a home soars to its highest in 13 years. On Tuesday, data had shown new home sales had their biggest monthly drop in six months, falling 8.6% from February. Existing home sales had fallen 2.7%, a separate study by the NAR showed last week. 

The NAR pointed again to the lack of affordable inventory as the chief reason for the drop. 

The affordability of home purchases has deteriorated in the last year, with prices rising over 20% in annual terms, according to the nationwide S&P/Case Shiller index. The cost of borrowing has also climbed in response to surging inflation, which is forcing the Federal Reserve into what looks likely to be a series of big rises in short-term interest rates. Long-term mortgage rates, which roughly reflect expectations for average short-term rates over specific timeframes, have risen increasingly sharply in recent weeks as the Fed's rhetoric has grown more hawkish - even though it has so far only made one solitary 25 basis point hike.

Fed Chair Jerome Powell indicated last week that the Fed will raise the Fed Funds target range by 50 basis points at its May meeting.

Earlier Wednesday, the Mortgage Bankers Association said its benchmark 30-year mortgage rate rose another 17 basis points last week to 5.37%, while the number of mortgage applications fell another 8.3% from the previous week, leaving them at their lowest in over three years.

"Home affordability is just the first casualty of tight Fed policy," said Roberto Perli, head of global policy research at Piper Sandler via Twitter, adding that: "There will be more, for both households and businesses."

"There can be no doubt that the Fed can control inflation; but there can also be no doubt about the costs," Perli said.