First, let me say that the housing market is in better shape now than from 2005 to 2010, even with the sudden rise in mortgage rates. Unlike the previous down cycle of residential properties, very few mortgages are based on adjustable rates, and households have the assurance with fixed-rate mortgages that their monthly mortgage payments will not change. The rise in mortgage rates impacts new buyers, and the decline in demand is not only good for housing but a key to the ultimate growth in housing prices. This week the National Association of Realtors (NAR) reported the decline in the 2022 Year over Year (YoY) pending home sales. Pending sales soared in 2021 primarily due to the great mitigation of people from the downtown housing to the suburbs. Just as cheap mortgage money prompts a hyper-growth of housing sales with demand outpacing supply, the opposite will most like occur as demand declines with the reduction of qualified buyers due to the recent rise of mortgage rates.
The below chart expands the historical history of pending home sales that illustrates the significant whipsaw of record pending sales in 2021 to this year’s six consecutive monthly declines of pending sales. Interesting to note that pending home sales started to decline in late 2004 and well before the 2008 massive housing crash.