“Mortgage rates have been rising above 7% since August, which has diminished the pool of home buyers,” Lawrence Yun, NAR chief economist said. “Some would-be home buyers are taking a pause and readjusting their expectations about the location and type of home to better fit their budgets.”
Yun also expressed concern about a possible government shutdown, which could worsen the conditions in the housing market.
“It will disrupt some home sales in the short run due to the lack of flood insurance or delays in government-backed mortgage issuance,” he said.
Moving forward, Yum hopes that the Fed will take into account “the sharply decelerating rent growth in its consideration of future monetary policy.”
“There is no need to raise interest rates,” he added.
Pending sales in August provide a preview of closed sales this fall
The sharp drop in pending sales in August, along with slower existing and new home sales, suggest that the housing market is cooling, Bright MLS Chief Economist Lisa Sturtevant noted.
Since pending home sales generally lead existing-home sales by a month or two, home sales are likely to remain close to the annualized rate of 4 million through the fall, the first time since 2010, First American Deputy Chief Economist Odeta Kushi said.
“August may be the beginning of the end of this resilient housing market, at least for a while,” Sturtevant said. “Buyers are hitting affordability ceilings, causing some of them to sit out the market. For others, the higher mortgage rates and general economic uncertainty are simply making them more cautious.”
Either way, she expects the number of home sales transactions to be at a decade-low this fall.
However, other economists say that housing market conditions typically line up for buyers in the early fall. Realtor.com Senior Economic Research Analyst Hannah Jones said that the early fall market benefits from “a build up in inventory left over from the summer as buyer demand fades, as well as below-peak prices.”