More homebuyers signed contracts to purchase homes in March, pushing pending sales to their highest clip in a year.
The index for pending home sales, a measure of contract signings on existing homes, rose by 3.4% in March, according to data from the National Association of Realtors (NAR) released Thursday. The reading of 78.2 marked the strongest performance in a year, but only narrowly. A reading under 100 still indicates a weaker pace of pending contracts.
“Meaningful gains will only occur with declining mortgage rates and rising inventory,” said Lawrence Yun, chief economist at NAR.
The figure far outpaced the Bloomberg consensus of a 0.4% month-over-month increase and a 3% annual decline. Still, contract signings were up just 0.1% year over year, according to NAR, barely an improvement.
Still, the association projects 4.46 million existing home sales in 2024, a 9% jump from 2023.
The uptick in the index, an early indicator of the housing market’s health, revealed what we have come to know: Demand continues to overwhelm housing supply, and buyers who have yet to be priced out are eager to purchase before prices or rates climb further.
For now, though, sales activity remains woefully low by historical standards.
“Home sales have lingered at 30-year lows, and since 70 million more Americans live in the country now compared to three decades ago, it’s inevitable that sales will rise in coming years,” Yun said. “Inventory will grow steadily from more home construction, and various life-changing events will require people to trade up, trade down, or move to another location.”
Read more: Mortgage rates top 7% — is this a good time to buy a house?
Home prices will continue to rise
If would-be buyers have been waiting for a break, it’s not coming anytime soon.
Home prices are expected to rise nearly 2% to a record national median price of $396,800 in 2024, the NAR estimated in its quarterly forecast. That’s up from $389,800 last year. Prices are predicted to surge even higher in 2025 to $403,600.
Any inkling of relief may be found among newly built homes. The association projects a modest reduction of 0.6% in the median new home price to $426,100 this year, down from $428,600 in 2023. The decline reflects builders’ focus on developing smaller-sized homes to attract entry-level buyers.
However, that will be short-lived. The NAR expects the median new construction home price will jump more than 3% to $440,500 in 2025.
“Job gains, steady mortgage rates, and the release of inventory from pent-up home sellers will lead to more sales,” Yun said. “Given the lingering housing shortage, home prices will march higher, albeit much more slowly than in the past.”
Also read: Here’s what $1 million buys in today’s housing market
First-time homebuyers fail to keep up with higher costs
Pending home sales, which tend to lead existing home sales by a month or two, began to pick up across the US in March.
In the Northeast, pending sales transactions increased nearly 3% from February but still were 0.3% down from March 2023. As for the West, contract signings rose almost 7% in March and were up almost 4% from a year earlier.
Pending sales activity in the South increased 7% and was down just 1.5% from the previous year. Meanwhile, contract signings in the Midwest fell 4.3% in March but remained just 1% above 2023 levels.
Some of the lag in activity could be attributed to the still-tight inventory of previously owned homes on the market. Typically, existing homes are a good starter point for first-time buyers in search of affordability.
But with more demand and less inventory to wade through, it’s getting harder to break into the market for this pool of buyers — especially if they are competing with repeat buyers who have equity on their side.
Read more: First-time home buyer in 2024: What you need to know
What’s more: Income growth has failed to keep up with home prices.
“Home price rising faster than income growth is not healthy and adds challenges for first-time buyers,” Yun said.
A separate study by Zillow showed that a typical buyer in today’s market would be facing a monthly mortgage payment that’s 96% higher than 2020 levels. That’s an average payment of $2,200 a month.
The main difference is that mortgage rates ended January 2020 near 3.5%. So far this year, rates have hovered between 6.5% and 7%.
Buyers today would also need an income of $106,000 to afford a typical home worth $342,941, Zillow found. That’s $47,000 more than they needed in 2020 and well above the current average income of $81,000.
Still, there’s a silver lining on the horizon.
“Inventory will gradually rise from recent growth in homebuilding,” Yun noted. “Additionally, many sellers who delayed listing in the past two years will start putting their homes on the market to move to a different home that better fits their new life circumstances.”
Gabriella Cruz-Martinez is a personal finance and housing reporter at Yahoo Finance. Follow her on X @__gabriellacruz.
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