Housing: What happens now that home sales are sinking?

Housing markets across the U.S. typically gain momentum during the spring months. However, four straight months of decline in ‘pending sales’ has many economists worried. Is the housing bubble about to burst? Is affordable housing completely out of reach for the average American now?

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What does the data say about housing markets?

Sales fell 5.4% compared to February 2021, according to the latest data from the National Association of Realtors. They measure signed contracts on existing homes.

Mortgage rates started taking off in February, which economists say is an indicator that change is happening. The average rate on a 30-year fixed mortgage is over 1% higher than it was a year ago.

Across the northeast pending sales are still up. In fact, they increased 1.9% from the month before. That said, they’re more than 9.2% down from a year ago.

Many believe the coronavirus pandemic is the biggest driver here — as Americans get back to normal.


What does this say about housing affordability?

According to data from the Mortgage Bankers Association it’s bad news. The housing supply hasn’t changed — but median home sale prices are still sky high.

In fact, the median monthly payment on a new mortgage is now taking up 8.3% more of a person’s income. That’s nearly 22% more than it was just a year ago.

As result, borrowers are paying nearly 10% more each month for their home — putting homeownership out of reach for many Americans.

Together with increased loan application amounts, a mortgage applicant’s median principal and interest payment in February jumped $127 from January and $337 from one year ago,” Edward Seiler, MBA’s associate Vice President of housing economics, told CNBC.


Can Congress do anything to help affordability?

Many states and cities across the U.S. are using COVID stimulus funds to enhance public assistance programs. These programs are often geared toward keeping people in their homes when facing economic challenge.

The biggest issue with these types of programs is that they do little to get more Americans into homes. Homeownership is viewed as the most direct way to individuals and families generating wealth. A growing percentage of the population has been forced to rent — and deal with skyrocketing rental prices — instead of settling down with roots.

States like Massachusetts and Colorado have set aside hundreds of millions of dollars to build more affordable housing. However, it has done little to address the overall problem.

The bottom line is that Congress needs to take far more aggressive action than they have to date.


Why are pending home sales still declining? 

The answer: Fewer homes for sale.

Lawrence Yun, NAR’s chief economist recently said that while buyer demand is intense — the lack of homes for sale is the biggest roadblock to a better market.

There were around 870,000 units available for sale in February 2022. That’s still less than half of what experts say would be needed to level the market. To make matters worse, existing-home price for all housing types across the U.S. increased 15% from 2021 to $357,300.

“The number of homes for sale remains very low and continues to shrink from last year, keeping the pace of sales elevated. In turn, list prices re-accelerated after the reprieve experienced during fall 2021, reaching a new high of $392,000 in February,” explained George Ratiu. He’s manager of economic research for Realtor.com.