June 6, 2023

Contracts to buy previously owned homes unexpectedly tumbled in March to break a three-month recovery, raising a warning flag about what appeared to be an incipient recovery in a housing market plagued by rising interest rates.

The National Association of Realtors said Thursday that the Pending Home Sales Index, based on signed contracts, fell 5.2% to 78.9 last month, the lowest since December.

Economists polled by Reuters had predicted expected sales to rise 0.5% in March, but the reported drop was even greater than the most pessimistic estimate in the study.

“The lack of housing inventory is a major impediment to rising sales,” said NAR chief economist Lawrence Yun. “Multiple listings are still happening on about a third of all listings and 28% of homes are selling above list price. The limited housing supply simply does not match the national demand.”

The housing market is the sector of the economy most visibly affected by the Federal Reserve’s aggressive rate hikes to curb inflation, but 2023 began with some indications that the worst may be over.

House for sale
The pending housing data suggests that the overall market recovery is likely to be choppy.
Bloomberg via Getty Images

That optimism was dented earlier this month when NAR reported that existing home sales fell 2.4% last month. While some strengthening has continued in the much smaller new home market, current housing data suggests that the market’s overall recovery is likely to be choppy.

Yun said sales should improve later in the year as he expects continued job growth and mortgage rates to fall to about 6% from the current 6.55% by the end of the year.

Contract signings were lower in the Northeast, Midwest and West, while the South posted fractional gains.