Pending Homes Sales Down As Inflation Reshapes The Housing Market's Future

Pending home sales were down in November as homebuyers and sellers respond to the sharp rise of inflation.

What Happened: The National Association of Realtors' (NAR) Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contract signings, dropped by 2.2.% from October to November, resulting in an index reading of 122.4; an index of 100 is equal to the level of contract activity in 2001. On a year-over-year measurement, signings were down 2.7%.

The four regions tracked by NAR recorded month-over-month declines: the Northeast PHSI dipped by 0.1% to 99.4, the Midwest index fell 6.3% to 116.8, the index for the South trended down by 0.7% to 148.2 and the index in the West slid by 2.2% in November to 105.5.

“There was less pending home sales action this time around, which I would ascribe to low housing supply, but also to buyers being hesitant about home prices,” said Lawrence Yun, NAR’s chief economist.

“While I expect neither a price reduction, nor another year of record-pace price gains, the market will see more inventory in 2022 and that will help some consumers with affordability.”

Yun added that housing demand remains high, noting that properties positioned for sale go from “listed status” to “under contract” in approximately 18 days.

“Buyer competition alone is unrelenting, but home seekers have also had to contend with the negative impacts of supply chain disruptions and labor shortages this year,” he said. “These aspects, along with the exorbitant prices and a lack of available homes, have created a much tougher buying season.”

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What Else Happened: Separately, a new survey released by the brokerage Redfin RDFN found 73% of homebuyers and sellers stating inflation is influencing their future buying or selling plans.

In a poll of Americans who are planning to buy or sell a home in the next 12 months, 29% of respondents said they're delaying homebuying plans due to inflation while 24% said they were moving up their homebuying plans and 11% are canceling plans altogether.

Also, 10% of respondents said inflation is causing them to move up their home selling plans, with 7% claiming they are delaying their selling plans and 3% canceling their plans. The survey results as inflation soars to its highest level in nearly 40 years, with consumer prices jumping 6.8% year-over-year in November.

"The way Americans interpret news about rising prices can have a variety of effects on their financial decisions, including homebuying," said Redfin Chief Economist Daryl Fairweather.

"Some people may delay buying because they're worried that with prices rising on everything from food to fuel, now is not the right time to make a huge purchase. But others might move faster to find a house because they're worried home prices and rent prices will increase even more, and they want to lock in a fixed payment."

Photo: Mohamed Hassan/Pixabay.