The most recent pending home sales index released by the National Association of Realtors (NAR) fell to its lowest level ever. The index, a forward-looking indicator based on contracts signed, fell to 77.6 – 16.4 percent lower than it was one year ago. This marks the second consecutive month of declines, further deepening the current housing market slump.
These numbers are concerning given the record low figures seen in 2008 during the recession. While the numbers are even worse now than they were then, economists are maintaining a degree of optimism that this decline is due to temporary market factors and not a more systemic economic downturn.
Analysts are attributing the decline to tight credit conditions, stricter mortgage underwriting standards, and the slow economic recovery from the pandemic. Potential buyers may be more hesitant to purchase due to continued uncertainty in the job market and concerns about economic stability.
Moreover, there is a lack of inventory as well. Inventories of existing homes are particularly tight, with a 3.9-month supply – far lower than the 6-month supply that indicates a balanced housing market. Low inventory levels lead to higher prices and bidding battles which can scare away potential buyers.
The good news is that the market appears to be recovering from the spring lockdown. As more businesses reopen and people gain back confidence, the stagnant housing market should start to show some signs of life. This will be further aided by the recent reduction in mortgage interest rates, which are now at one of the lowest levels in history.
