Pending home sales were at their third-highest level since 2006 in June, but are rising mortgage rates beginning to have an impact?
Pending home sales were at their third-highest mark in more than six years in June, though industry analysts are beginning to fear that rising mortgage rates may finally be impacting home sales.
According to the latest Pending Home Sales Index from the National Association of Realtors, contract signings were down 0.4 percent from May to June, though they were up 10.9 percent from June 2012 to an index reading of 110.9.
Rising Mortgage Rates and Pending Home Sales
June was not only the 26th straight month of yearly increases for the Pending Home Sales Index, but also the third best reading for the index in 78 months. Also, the yearly increases for the index were widely shared on a regional level, with contract signings rising 12.2 percent in the Northeast, 19.5 percent in the Midwest, 9.5 percent in the South and 4.4 percent in the West.
Based on June’s numbers, NAR is predicting existing-home sales to rise 8 percent in 2013 over 2012, and for inventory shortages to drive median price up by nearly 11 percent.
But still, that monthly decline from May to June is giving some analysts pause, chief among them Lawrence Yun, the chief economist for NAR.
“Mortgage interest rates began to rise in May, taking some of the momentum out of contract activity in June,” Yun said. “The persistent lack of inventory also is contributing to lower contract signings.”
One of the chief reasons for the decline, Yun said, are “floating mortgage interest rates,” which can fluctuate from the time of signing to the closing date.
“Those rates can be locked as late as 10 to 14 days before closing, so some homebuyers may change their minds if the rate rises too much, which apparently happened with some sales scheduled to close in June,” Yun said.
The Near-Future for Pending Sales
So, can we expect pending sales to decline further in another month, when NAR releases its data for July? Yun predicts that contracts will stay above their year-ago levels, though he does think closed sales may edge down.
We should point out, though, that less sales does not necessarily translate to a detour for the housing recovery. As research by Fannie Mae suggests, sharp increases in interest rates may level home sales and lessen increases, but they won’t derail the markets forward progress.