Pending Homes Sales Hit All-Time Low In US – Analysts Think Housing Market Is At A "Breaking Point"

The National Association of Realtors' Pending Home Sales Index plummeted to a record low of 70.6, a decline of 5.2% from last year. NAR data showed purchase contract signings fell in each of America's four regions, with the biggest drop-off in the South. There is near universal agreement among experts that high prices and interest rates are the primary reasons for the decline in purchase activity.

NAR Chief Economist Lawrence Yun said, “It is unclear if the coldest January in 25 years contributed to fewer buyers in the market, and if so, expect greater sales activity in upcoming months. However, it’s evident that elevated home prices and higher mortgage rates strained affordability.”  The NAR report showed current 30-year fixed mortgage rates ranging between 6.91% and 7.04%.

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Bravos Research put the crisis into stark terms with the following observation on X, "Mortgage payments now make up 40% of the average household income – the highest levels in over 30 years. By the classic rule of keeping payments under a third of income, about 70% of Americans today can't afford a mortgage. Housing affordability is at a breaking point."

The declines in the South, which has been drawing buyers looking for affordable housing options, are especially dramatic. The South's index totals for January fell by 9.2% to 81. 

The NAR data also noted that the current interest rates have raised the average house payment on a $300,000 mortgage by $50 per month to $1,590. That's another $600 per year out of the pockets of already strapped buyers.  

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It may not seem like a lot, but every extra dollar pushes prospective home buyers further away from their goal. Yun seemed to concur with this sentiment when he said, “Even a slight reduction in mortgage rates will likely ignite buyer interest, given rising incomes, increased jobs, and more inventory choices.” This explains why buyers are so profoundly affected when the Federal Reserve moves rates up or down by even a quarter-point.

Home builders and developers also depend on access to low-interest financing to complete their projects. Homeowners locked into sub-4 % mortgages are in no rush to sell and enter a market where high prices and interest rates limit their buying power. That compounds the availability issue and puts a price premium on for-sale listings. Taken altogether, it's easy to see why some people fear America's housing market is near its breaking point.

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