Pending home sales decreased in March for the first time since November 2022, according to the National Association of REALTORS. Three U.S. regions posted monthly losses, while the South increased. All four regions saw year-over-year declines in transactions.

The Pending Home Sales Index (PHSI)* – a forward-looking indicator of home sales based on contract signings – waned by 5.2% to 78.9 in March. Year over year, pending transactions dropped by 23.2%. An index of 100 is equal to the level of contract activity in 2001.

“The lack of housing inventory is a major constraint to rising sales,” said NAR Chief Economist Lawrence Yun. “Multiple offers are still occurring on about a third of all listings, and 28% of homes are selling above list price. Limited housing supply is simply not meeting demand nationally.”

NAR Forecast

NAR forecasts that the economy will continue adding jobs, albeit at a slower pace, and mortgage rates will drop – with the 30-year fixed mortgage rate progressively falling to 6.0% this year and to 5.6% in 2024. Housing starts will fall from last year by 7.3% in 2023, to 1.44 million, and then increase by 6.9% in 2024, to 1.54 million.

“Sales in the second half of the year should be notably better than the first half as job gains continue and more favorable mortgage rates are expected,” Yun said. “Sales of new homes are already matching 2019 pre-COVID activity and are expected to increase in 2023, largely due to plentiful inventory in this segment of the market.”

With continued job gains and improving interest rates, NAR anticipates existing-home sales will steadily improve in the upcoming months but will still come up short on an annual figure. Existing-home sales will drop from the prior year by 9.3% in 2023, to 4.56 million, before increasing by 15.4% in 2024, to 5.26 million. Newly constructed home sales will increase from last year by 4.5% in 2023, to 670,000, due to more plentiful inventory in this segment of the market, and increase by another 11.9% in 2024, to 750,000.

Compared to last year, NAR forecasts that median existing-home prices will mostly stabilize – with the national median existing-home price decreasing by 1.8% in 2023, to $379,600, and then improving by 2.8% in 2024, to $390,000. The expensive West region of the U.S. will see lower prices, but the affordable Midwest region will likely squeak out a positive gain. The median new home price will be lower by 1.9% in 2023, to $449,100, followed by an improvement of 4.2% in 2024, to $468,000.

Pending Home Sales Regional Breakdown

The Northeast PHSI fell 8.1% from last month to 66.6, a decline of 24.3% from March 2022. The Midwest index dropped 10.7% to 75.7 in March, down 21.5% from one year ago.

The South PHSI improved 0.2% to 99.6 in March, falling 19.8% from the prior year. The West index decreased 8.0% in March to 59.4, reducing 32.2% from March 2022.

*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.

Pending contracts are good early indicators of upcoming sales closings. However, the amount of time between pending contracts and completed sales is not identical for all home sales. Variations in the length of the process from pending contract to closed sale can be caused by issues such as buyer difficulties with obtaining mortgage financing, home inspection problems, or appraisal issues.

The index is based on a sample that covers about 40% of multiple listing service data each month. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.

An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.