U.S. pending home sales plummeted in August, according to a recent survey from the National Association of Realtors (NAR), fueling rumors of an impending housing market crash.
As housing affordability continues to hover around its worst level in decades, it seems would-be home buyers are starting to step away from the market altogether. Indeed, the NAR’s Pending Home Sales Index fell from 77.3 in July to 71.8 in August, a 7.1% drop.
Not only was this the largest drop in the index since September of last year, it’s almost nine times wider than the economist-predicted 0.8% decrease. As a whole, pending sales are down 18.7% from the same time last year.
“Some would-be home buyers are taking a pause and readjusting their expectations about the location and type of home to better fit their budgets,” said Lawrence Yun, the NAR’s chief economist. “It’s clear that increased housing inventory and better interest rates are essential to revive the housing market.”
Unfortunately (if you’re a home-seller), this is just the latest evidence of the marked drop in real estate demand in 2023. Mortgage and refinance applications, home sales, and the supply of available homes have all been in the gutter this year.
Not for nothing, it’s a historically bad time to buy property in the U.S.
Housing Market Crash Fears Heat Up as Mortgage Rates Hit 23-Year High
Today’s news comes as a clear reaction to the persisting high-interest monetary environment the Federal Reserve has engineered.
On Wednesday, 30-year mortgage rates climbed to 7.41%, from 7.31% last week, the highest level since 2001. According to economists, this has much to do with the Fed’s recent policy meeting, where Fed Chair Jerome Powell hinted rates would remain “higher for longer.”
“Based on the FOMC’s most recent projections, rates are expected to be higher for longer, which drove the increase in Treasury yields,” Joel Kan, an MBA economist, told CNBC. “Overall applications declined, as both prospective homebuyers and homeowners continue to feel the impact of these elevated rates.”
Despite the fall in housing demand, home prices are actually in the green this year, albeit less than a percent, according to Zillow.
This has fueled concerns that a housing market crash is on the way. In that regard, evidence is mixed. While there’s no doubt that housing demand is tumbling, the supply of available homes for sale is still notably low. With a low inventory of homes to buy, real estate prices can remain artificially propped up even as would-be buyers rapidly exit the market.
However, some economists believe it’s only a matter of time before deteriorating economic conditions force sellers into the market, unleashing an influx of homes for sale. Should that happen, the imbalances in the market would ease, giving prices room to fall. However, most economists agree a crash akin to the 2008 housing recession is unlikely, even should sellers return.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
