The number of signed contracts to buy homes plummeted more than expected in the month of June after mortgage rates and home prices rose — outcomes of the U.S. economy’s continued struggle to stay afloat.
The National Association of Realtors said that its pending home sales index took a 20 percent dive in June compared to June of last year, Fox News reported.
The result: Entry-level buyers are now being pushed out of the market.
With the exception of the first two months of the pandemic, there hasn’t been a slowdown in the housing market like this since September 2011, CNBC News reported.
Originally, Refinitiv economists predicted that pending homes sales would drop by 1.5 percent. But on a monthly basis, those sales have dropped 8.6 percent, Fox reported.
These plummeting numbers are all in reaction to the rising interest rates that the Federal Reserve is introducing in an attempt to battle inflation.
Fed policymakers already approved a 75-basis-point rate increase in June and then approved yet another 75-basis-point hike yesterday, the Wall Street Journal reported.
This pushes the benchmark federal funds rate to a number ranging between 2.25 percent and 2.50 percent, which is its highest since the pandemic began over two years ago.
As the Fed tightens its monetary policy, the housing market is only bound to feel the effects of it, as the entire market is interest rate-sensitive.
The average interest rate of the 30-year fixed loan crossed over 6 percent in mid-June, Mortgage News Daily reported.
At the start of the year, the rate was nearly half that — sitting around 3 percent.
“Contract signings to buy a home will keep tumbling down as long as mortgage rates keep climbing, as has happened this year to date,” Lawrence Yun, chief economist for NAR, told CNBC. “There are indications that mortgage rates may be topping or very close to a cyclical high in July. If so, pending contracts should also begin to stabilize.”
The drop in sales was nationwide, but the South and West saw the worst of it.
Sales declined 8.9 percent monthly and 19.2 percent from last year in the South. The West took a major hit as sales dropped 15.9 percent monthly and 30.9 percent from June 2021, according to CNBC.
The NAR is forecasting that total sales for this year will decline 13 percent. They remain hopeful, however, that sales could start to rise again as early 2023.
But sales largely depend on mortgage rate levels, as the month of June has proven.
“Looking ahead, a slowdown in economic activity and pullback in business investments could lead to a moderation in the pace of mortgage rate gains, as investors shift allocations toward the safety of bonds,” said George Ratiu, senior economist at Realtor.com, according to CNBC. “Combined with the increase in housing supply, we could see improved opportunities for homebuyers later in the year.”
This article appeared originally on The Western Journal.