Pending Home Sales Have Gone Down Drastically Since 2021
Whether you're looking to buy a home or just dreaming about the future while perusing Zillow, you've probably noticed that the amount of homes for sale has decreased this past year. Altos Research expects inventory to stay low and predicts less than 500,000 homes will be for sale at the beginning of 2023.
Fewer homes can lead to one of two things: Either the number of sales decreases, as there isn't enough inventory to meet the demand, or the number of sales stays consistent because buyers are willing to spend a bit more or buy a home that doesn't perfectly match their expectations.
During 2022, the former happened: The number of pending home sales drastically decreased from 2021's numbers. This is because mortgage rates and home prices are high. Below, you'll discover just how much pending home sales have decreased this year, as well as more information about the two reasons for the decline and what to expect in 2023.
How much have pending home sales decreased?
The National Association of Realtors explains that pending home sales data precedes the number of actual sales because it's based upon when contracts are signed, which can happen months in advance. Further, this data takes into account the signing of contracts for homes, condos, and co-ops.
According to Housing Wire, pending home sales have decreased 37% from 2021 and have been declining steadily this entire year. For instance, pending home sales fell for 11 months in 2022, and from September to October, they suffered about a 4.6% drop. CNBC says that besides for a short time at the beginning of the COVID-19 pandemic, home sales haven't been this low since September of 2012.
When looking at the four regions of the U.S., all of them have had a decrease in pending home sales year over year, per Housing Wire. The West has been affected the most, with a decrease of 46.2%. Further, three regions have also experienced a monthly reduction, and the West saw a decline of 11.3%, while the Midwest experienced a slight gain of 3.3%.
Two reasons for the decline and what to expect in the future
The first reason for the decrease in pending home sales is high mortgage rates. According to CNBC, while the average 30-year mortgage rate for a home was about 3% at the beginning of 2022, it's now closer to 7%. This has, of course, affected home sales, as many buyers don't want to take on such a high mortgage. Further, this has also made potential sellers reluctant to move, as they probably don't want to give up their low 3% mortgage.
The second reason is that home prices have grown exponentially since the beginning of the COVID-19 pandemic — In fact, they've even increased since last year. Bankrate says that the West, which is well known for having high home prices, has experienced a 5.3% increase from October 2021. This may be partly why the West has also experienced the most decline in pending home sales. Further, even the Midwest, which has the lowest prices overall, has experienced a 5.9% increase since 2021.
However, many experts expect mortgage rates or home prices to fall in 2023. Fortune says that some believe that prices could lower anywhere from 0.2% to over 20%, and according to Forbes, some expect mortgage rates at the end of 2023 to drop to around 5.5%. Either way, whether home prices or mortgages drop, we should see an increase in pending home sales next year.