The numbers: Pending home sales fell in January as rising mortgage rates pushed buyers out of the housing market.
Pending home sales fell 4.9% in January from the previous month, according to the monthly index released Thursday by the National Association of Realtors (NAR).
Pending home sales reflect transactions where the contract has been signed for an existing-home sale, but the sale has not yet closed. Economists view it as an indicator of the direction of existing-home sales in subsequent months.
The drop in pending home sales was the largest since August 2023, when they fell 5%.
The sales pace fell short of expectations on Wall Street. Economists were expecting pending home sales to increase by 1.5% in January.
Transactions were down 8.8% from last year.
Big picture: Mortgage rates began their ascent to 7% towards the end of January, when the market saw that the Federal Reserve would not be cutting interest rates in March.
Even slight increases in rates can affect how much some buyers can afford to buy a home. At 7%, the monthly payment on a $400,000 home would be roughly $2,700, and buyers would potentially need to earn $108,440 a year to afford that comfortably.
Looking ahead, applications for purchase mortgages are trending down, as mortgage rates remain over 7% at the end of February. That indicates that sales activity may be muted in the coming months.
What the Realtors said: “The job market is solid, and the country’s total wealth reached a record high due to stock market and home price gains,” Lawrence Yun, chief economist at the NAR, said in a statement.
While “this combination of economic conditions is favorable for home buying,” he added, “consumers are showing extra sensitivity to changes in mortgage rates in the current cycle, and that’s impacting home sales.”
