Pending Homes Sales Fall 4.1%, Limping Into Fourth Straight Month Of Decline

Pending home sales declined once again in February as the number of contracts signed fell by 4.1%, the fourth consecutive drop.

According to the National Association of Realtors, sales were down 5.4% compared to the same time last February. The recent decline came as a setback for analysts, who predicted that the market was more likely to see a gain because of the approach of spring when sales tend to be higher.

Why home sales have been so weak relates to many problems plaguing the housing market in the U.S. Since the COVID-19 pandemic, the sector has been hampered by higher building costs because of choked global supply chains as well as a shortage of workers that began before the pandemic. Problems of affordability as well as an imbalance in supply and demand have deterred buyers from entering the market.

"Pending transactions diminished in February mainly due to the low number of homes for sale," said Lawrence Yun, NAR's chief economist. "Buyer demand is still intense, but it's as simple as ‘one cannot buy what is not for sale.' "

Yun described the housing market as "extremely competitive," but added that "fast-changing conditions" that touch on affordability lay ahead. This, he adds, creates a difficulty for home sellers who cannot "simply bump up prices" in the coming months with a background environment that includes rising interest rates that in turn push up mortgages.

Last week, the Federal Reserve embarked on a more hawkish path to tame inflation when it raised interest rates by a quarter of a percentage point. The impact has already begun to register in the mortgage market where applications have fallen by 8.1% in the week since the Fed's decision and refinancing rates have dropped by 14%, according to the Mortgage Bankers Association.

The challenges may not stop here. After the Fed hiked borrowing costs, Chairman Jerome Powell said that he was prepared to act more forcefully against inflation if the current pace of rate hikes was insufficient to have enough of an effect.

“Housing demand is rolling over,” Pantheon Macroeconomics said in an analysis that was shared on Twitter. “Q1 is on track for a near -40% annualized plunge. The writing is on the wall, in big, sharp, clear letters.”