The housing market is in a state of flux, with a recent report indicating a significant plunge in pending home sales across the United States. This trend is particularly notable in the Midwest, where sales have dropped to near-record lows, and the West, where they have reached their lowest point in the data's history. The South is also experiencing a decline, with sales in June hitting their lowest level for any June on record. This data comes as mortgage rates continue to rise, further impacting the market.
The National Association of Realtors' data reveals a 5.4% decline in pending home sales from May to June, marking the lowest level for any June on record. This decline is a continuation of a trend that has persisted for four years, with demand remaining in a deep freeze. The supply of existing single-family homes is at a 10-year high, and the supply of existing condos is at a 14-year high, which may be contributing to the low demand.
The Midwest has seen the most significant drop, with sales plunging by 8.9% in June from May. This region is now back in the middle of the deep-freeze range, with December being the record low in the data. The West and South are also experiencing record lows, with the West sharing its lowest point with October 2023. The Northeast has seen a substantial decline, but it was the smallest among the four regions.
The metric of pending home sales tracks contracts signed in June but not yet closed, and the rate of cancellations has been high. This data highlights the challenges faced by buyers, who may not be able to afford homeowner's insurance or sell their own homes, leading to potential cancellations. The rising mortgage rates, currently averaging around 6.48%, are also a significant factor in the market's current state.
The author, Wolf Richter, emphasizes that these mortgage rates are not high in a historical context. They are only high in the context of the years of quantitative easing (QE) when the Federal Reserve purchased trillions of dollars of Treasury securities and mortgage-backed securities to artificially repress mortgage rates. This policy led to the worst inflation in 40 years and the worst home-price explosion on record, resulting in home prices that are now too high and a liability for the economy. The housing market is now trying to recover from this hangover.
In conclusion, the housing market is facing a challenging period with low demand and rising mortgage rates. The data highlights the need for buyers and sellers to adapt to these changing conditions, and the author's commentary provides a deeper understanding of the market's historical context and the implications of current trends.
