Last Updated on October 30, 2022 by Bitfinsider

According to the National Association of Realtors, pending home sales, which is a measurement of signed contracts on existing homes, decreased by a far worse-than-expected 10.2% in September compared to August. This news came as a surprise to many.

Economists had anticipated a decrease of 4% in the market value. The decline in sales was 31% compared to the previous year.

This represents the lowest level that the pending sales index has seen since June 2010, with the exception of April 2020, which was during the early stages of the Covid epidemic.

The rapid rise in mortgage rates, which had been at record lows for the first two years of the pandemic, is the primary factor that realtors cite as the cause of the housing crisis. According to Mortgage News Daily, the typical interest rate for the widely used 30-year fixed mortgage was exactly around 3% at the beginning of this year, but it has since skyrocketed and above the 6% threshold. During the months of July and August, it saw a brief period of decline before beginning its ascent once more. It surpassed 7% in September, which is when these contracts were finalized.

Lawrence Yun, chief economist for the National Association of Realtors, stated that “persistent inflation has shown to be highly damaging to the housing market.” “The Federal Reserve has been forced to significantly hike interest rates in order to contain inflation, which has led to a significant decrease in the number of buyers and an even smaller number of sellers.”

Mortgages are becoming less in demand, and there are fewer homes being listed for sale, because homeowners are reluctant to give up their historically low interest rates in exchange for considerably higher ones. As a result of the rise in interest rates, the prospective purchasers of a property with a median price and a 20% down payment will now have a monthly payment that is close to $1,000 more expensive than it was in January.

According to George Ratiu, senior economist at Realtor.com, “Buyers’ purchasing power has been cut by almost $100,000 because earnings have fallen behind because of inflation, and rates have risen.”

When we look ahead to the rest of the year, we may anticipate that interest rates will continue their ascent toward increasingly high levels. Because the Federal Reserve’s efforts to reduce the money supply have not yet been successful in bringing inflation under control, the bank is likely to increase its policy interest rate even higher, he added.

Even though housing prices have begun to cool off and even fall in some local markets, the decrease is not enough to compensate for the increase in interest rates. Since the beginning of the epidemic, home prices have increased by more than forty percent, which is partly attributed to the historically low mortgage rates that were prevalent at the time.

Pending house sales in the Northeast experienced a decrease of 16.2% from the previous month to the current one and a decrease of 30.1% from the previous year. The Midwest experienced a decrease in sales of 8.8% for the month and a decrease of 26.7% from the previous year.

In the West, which is the most costly region in the country, sales dropped 11.7% for the month and were down 38.7% from the year before. Sales in the South decreased by 8.1% for the month and were down 30.0% year over year.