US pending home sales jumped in March, beating expectations by a mile

By Bryan Mena, CNN

Washington (CNN) — Home sales based on contract signings unexpectedly jumped in March despite elevated mortgage rates that month. And the latest data from Freddie Mac showed that mortgage rates edged higher this week, reaching a fresh five-month high.

Pending home sales — a forward-looking indicator based on contract signings rather than closings — climbed 3.4% in March, the National Association of Realtors reported Thursday, which was “the best performance in a year,” according to a release. That was well above the 0.3% decline forecast by economists, according to a FactSet poll. Contract signings rose across the country in March from the prior month, except in the Midwest.

Despite the March gain, pending home sales are still “in a fairly narrow range over the last 12 months without a measurable breakout,” NAR’s chief economist, Lawrence Yun, said in a release. “Meaningful gains will only occur with declining mortgage rates and rising inventory.”

The broader US housing market began the year with some momentum, as home sales climbed, homebuilder sentiment improved and traders priced in several interest rate cuts this year. Now, the narrative has shifted.

Existing home sales, which make up the vast majority of the housing market, plunged in March. Hotter-than-expected inflation readings in recent months are now keeping the Federal Reserve from cutting interest rates anytime soon.

That has sent bond yields soaring. The average 30-year fixed-rate mortgage, which tracks the 10-year US Treasury yield, surged past 7% last week, and economists aren’t expecting rates to fall meaningfully this year.

“Pending home sales probably will drop back significantly over the next couple of months. Sales cannot defy weaker mortgage demand indefinitely, and applications have continued to soften in April,” Oliver Allen, senior US economist at Pantheon Macroeconomics, wrote in a note Thursday.

Housing affordability remains tough

In addition to elevated mortgage rates, housing affordability is also being hampered by rising home prices and a persistent lack of homes on the market.

The median US home price was $393,500 last month, up 4.8% from a year earlier and the highest level since August 2023. It was also the highest March price on record. S&P Global releases a comprehensive index of home prices across the country next week and that one reached a record high in January.

Housing inventory has improved recently, but it’s still not keeping up with demand. Not only does that mean homebuyers have fewer choices, but it also puts some upward pressure on prices in markets where there is an undersupply of housing.

Inventory of unsold homes rose 4.7% in March from the prior month to 1.11 million units, and was up 14.4% from a year earlier, according to NAR data. There isn’t enough housing supply for various reasons, but a key one has been that homeowners are choosing not to sell because they want to hold onto their low mortgage rate.

Those are the so-called “golden handcuffs” of low mortgage rates. They began to climb in early 2022 when the Federal Reserve started to hike interest rates in a bid to tamp down high inflation. Homeowners have opted to stay put, but life events such as marriage, divorce and new children could force some of them to give up on waiting for mortgages rate to decline and sell their home, Yun has said.

Mortgage rates continue to rise

The 30-year fixed-rate mortgage averaged 7.17% in the week ended April 25, up slightly from the 7.10% registered last week. That was the highest level since late November. The average 15-year mortgage also rose this week.

“Despite rates increasing more than half a percent since the first week of the year, purchase demand remains steady,” said Sam Khater, Freddie Mac’s chief economist, in a release. “With rates staying higher for longer, many homebuyers are adjusting, as evidenced by this week’s report that sales of newly built homes saw the biggest increase since December 2022.”

Demand for housing could weaken or stall if both mortgage rates and home prices remain elevated. It remains to be seen if housing inventory will continue to catch up. Residential construction of single-family homes also fell sharply in March, down 12.4% to a seasonally adjusted annual rate of 1.022 million units, according to Commerce Department data.

The 10-year Treasury yield climbed Thursday above 4.70%, the highest level in more than five months, after the latest data on gross domestic product showed that growth slowed more than expected as inflation remained stubbornly high that quarter, too.

This story is developing and will be updated.

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