Pending Home Sales Indicate Possible End to Housing Recession
In June, pending home sales registered a modest 0.3% increase, marking the end of a three-month decline. This rise, primarily due to heightened activity in the Northeast and Midwest, brought the National Association of Realtors’ (NAR) Pending Home Sales Index (PHSI) to 76.8. The PHSI, an essential housing sector indicator, is based on contracts for existing home purchases and is usually finalized within one or two months.
NAR Chief Economist’s Outlook on the Housing Sector
Despite the slight uptick, NAR Chief Economist Lawrence Yun believes the housing recession has ended. Yun predicts that the average 30-year fixed-rate mortgage will be 6.5% this year and 6.0% in 2024. According to Yun, the housing demand is unmet due to a lack of supply, driving homebuilders to increase production and hiring.
Forecast for the Housing Market
Existing home sales are predicted to decrease by 12.9% in 2023, to 4.38 million units. However, a substantial 15.5% rebound to 5.06 million units is projected for 2024. National median existing-home prices will likely remain steady, declining slightly by 0.4% to $384,900 in 2023, then rising 2.6% to $395,000 in 2024. The Midwest region is expected to witness a minor price increase while the West, the nation’s most expensive region, will see reduced prices.
The Impact of Supply on Home Prices
Yun emphasizes that expanding supply is vital for more Americans to access homebuying. Home prices will be determined by the amount of inventory available in the market. Increased homebuilding will help moderate price growth, while limited construction could result in home prices outpacing income growth.
New Home Sales Projections
New home sales are expected to rise 12.3% to 720,000 units this year due to increased inventory. Additionally, they will expand by another 100,000 units next year. The national median new home price will likely decrease by 1.9% to $449,100 before rising 4.2% to $468,000 in 2024.
Regional Breakdown of PHSI
The Northeast PHSI rose 0.6% from May to 67.1, while the Midwest index jumped 4.3% to 77.6. However, these figures remain lower year-over-year. The South saw a 1.4% decrease in pending sales to 93.3, marking a 14.3% annual decline, while the West registered a 1.0% and 15.5% decline from the two earlier periods at 57.7.