National pending home sales are at their lowest point since December 2015. No major region of the United States is immune.
This scenario is likely caused by at least 3 key factors. First, the mortgage rates are steadily rising and projected to be above 5% and close to 6% by the end of this year. Second, there is a low inventory of homes and it doesn’t seem to be improving yet. Third, the new tax law eliminates many tax benefits for homeowners, including first-time home buyers to the point that owning a home and renting are on the same tax level.
- Pending sales fell 3.8% since last year, making it the lowest level since the end of 2015.
- Mortgage rates are climbing since December 2017 and are believed to be above 5% by the end of 2018.
- Available homes for sale at the end of January 2017 was 9.5% lower than last year, making it an all-time low.
- Loss of tax benefits and high mortgage rates may be encouraging homeowners to stay put as we can see from data showing that sellers generally stayed in their homes for 10 years before selling, which is an all-time high.
Pending home sales – an indicator of future home sales, based on contract signings – in January fell 3.8% from a year ago, to their lowest level since December 2015, NAR reported.
There’s little doubt last month’s retreat in contract signings occurred because of woefully low supply levels and the sudden increase in mortgage rates.
According to the Mortgage Bankers Association, the average interest rate of a conforming 30-year fixed-rate mortgage jumped from around 4.0% in November and December to 4.4% by the end of January, and has continued on this trajectory. The MBA reported today that for the week ended February 23, it was 4.64% (via Trading Economics). So the January move in mortgage rates was just the first baby step, there being a good chance mortgage rates will be above 5% and perhaps close to 6% by year-end.
Inventory of homes listed for sale has been low and trending lower. According to the NAR report: “The number of available listings at the end of January was at an all-time low for the month and a startling 9.5% below a year ago.”
The combination of higher rates on a new mortgage and the loss of tax benefits might lock homeowners into their current homes because they cannot afford the payments on a similar home at current prices, and thus cannot afford to sell.
View the original article at Business Insider