Contract signings eked out an uptick in September, despite multiple headwinds rumbling throughout the real estate market. The National Association of REALTORS®’ Pending Home Sales Index—a forward-looking indicator of home sales based on contract signings—increased by 1.1% last month compared to August.
“Despite the slight gain, pending contracts remain at historically low levels due to the highest mortgage rates in 20 years,” says Lawrence Yun, NAR’s chief economist. “Furthermore, inventory remains tight, which hinders sales but keeps home prices elevated.” Pending sales for existing homes are down 11% compared to a year ago.
On the other hand, potential home buyers on the prowl for more homes for sale may find more options lately in the new-home market. New-home sales posted a double-digit percentage gain in September, which was largely attributed to the lack of inventory in the resale market. Sales of newly built, single-family homes rose 12.3% in September, and are up nearly 34% from a year ago, the Commerce Department reported this week.
Still, the new-home market isn’t immune to the latest real estate challenges either. “While more buyers are turning to new construction because of a lack of existing inventory, higher mortgage rates that are approaching 8% are expected to slow the market in the coming months as affordability conditions continue to worsen,” says Alicia Huey, chairperson of the National Association of Home Builders. “Higher interest rates not only raise the cost of housing for buyers but for builders as well because of increased costs for financing construction loans.”
A Look Ahead
Contract signings can vary greatly from market to market. NAR’s pending home sales index showed monthly increases for contract signings in the Northeast, Midwest and South, while the West saw a decrease. Sales are volatile at the moment, but better days may be ahead for home sales, according to NAR’s latest forecast.
“Sales are expected to turn positive by early next year, with affordable regions and fast job-creating markets in better positions to recover, led by the Midwest and South,” Yun says.
NAR released an update to its 2023 and 2024 home sales forecast, including:
- Existing-home sales: NAR predicts home sales to be down 17.5% for 2023, reaching 4.15 million. NAR forecasts a turnaround for existing-home sales, with projections of a 13.5% increase in 2024.
- Home prices: The national median existing-home price is projected to remain stable in 2023, inching up modestly by 0.1% to $386,700. Home prices are expected to increase by 0.7% in 2024, reaching $389,500.
- Mortgage rates: NAR forecasts the 30-year fixed-rate mortgage to average 6.9% in 2023. Rates are expected to decrease to an average of 6.3% in 2024.
- Housing starts: Housing starts are predicted to drop by 10.4% in 2023 compared to 2022. But new-home construction is forecasted to rise in 2024 by 6.5%.
- New-home sales: Sales of newly constructed homes are expected to increase by 4.5% in 2023 compared to last year. Sales likely will continue to increase by another 19.4% in 2024.
- New-home prices: NAR projects the national median new-home price will decrease by 5.9% in 2023, reaching $430,800. However, new-home prices are expected to increase by 3.5% in 2024, settling in at $445,800.