US Home Sales Fall Again, Posts Second-Lowest Monthly Reading in 20 Years

A 'For Sale' sign hangs in front of a home in Miami, Fla., on June 21, 2022. Joe Raedle/Getty Images

U.S. pending home sales tumbled 4 percent in November, according to the National Association of Realtors (NAR). This is up from the 4.6 percent drop in October, but the reading was worse than the market estimate of a 0.8 percent dip.

On a year-over-year basis, pending home sales plummeted 37.8 percent, down from the 37 percent decline in the previous month. Trading Economics had projected a print of negative 32 percent.

Pending home sales—a crucial measurement of housing activity based on signed real estate contracts for existing residential properties—recorded their second-lowest monthly figure in two decades, the NAR reported. This was also the fifth straight monthly decline in pending home sales.

“Pending home sales in November 2022 recorded the second-lowest monthly reading in 20 years as interest rates climbed, drastically cutting into the number of contract signings to buy a home,” said Lawrence Yun, the chief economist at the NAR, in the report. “With mortgage rates falling throughout December, home-buying activity should inevitably rebound in the coming months and help economic growth.”

Last week, the NAR confirmed that existing home sales plunged 7.7 percent, totaling 4.09 million units, in November. This was down from the negative 5.9 percent performance, and represented the tenth consecutive monthly drop.

Looking Ahead to 2023

In August, the National Association of Home Builders (NAHB) declared a recession in the national real estate market. While NAHB chief economist Robert Dietz recently suggested that the housing market could have reached a bottom, the latest influx of data allude to decade-low readings for nearly every sector.

A house's real estate for sale sign shows the home as being "Under Contract" in Washington, D.C., on Nov. 19, 2020. Saul Loeb/AFP via Getty Images

James Knightley, the chief international economist at ING, echoed this sentiment and stated that the “U.S. housing recession is already here.”

“Rising mortgage rates and a lack of affordability are prompting a steep drop-off in demand for housing,” he wrote in a September note. “At the same time, inventory for sale is on the rise. A combination of falling transactions and prices will intensify the recessionary forces the U.S. economy is facing.”

Will the 2022 correction or downturn in the U.S. housing market continue in 2023?

According to the NAR’s Yun, home sales will fall by 6.8 percent in 2023 compared to 2022. The median home price will be relatively unchanged at $385,800.

Demand for housing is still outpacing supply, which is preventing a collapse in prices, says Yun. Other indicators, such as employment growth, the share of remote work, and better housing affordability, could also drive the industry next year.

Total housing inventory decreased 6.5 percent, to 1.14 million units, in November, NAR numbers confirmed.

The Federal National Mortgage Association, also known as Fannie Mae, anticipates that home sales will slump again in 2023, with 4.57 million units changing hands compared to 5.72 million units this year. The real estate sector will witness a meaningful rebound in 2024, Fannie Mae predicted.

Redfin, a residential real estate brokerage firm, expects home sales will slide to their lowest levels since 2011, before initiating a “slow recovery in the second half of the year.”

“We expect about 16 percent fewer existing home sales in 2023 than 2022, landing at 4.3 million, with would-be buyers pressing pause due mostly to affordability challenges including high mortgage rates, still-high home prices, persistent inflation and a potential recession. People will only move if they need to,” wrote Taylor Marr, the deputy chief economist at Redfin, in a research report. “That’s fewer home sales than any year since 2011, when the U.S. was reeling from the subprime mortgage crisis, and a 30 percent decline from 2021 during the pandemic home-buying boom. It would also lead to the lowest housing-turnover rate since the early 1980s, with just 32 out of every 1,000 households selling their home in 2023.”

According to Fannie Mae, the average 30-year fixed-rate mortgage is expected to be 6.8 percent in 2023. But the Mortgage Bankers Association (MBA) projects 5.2 percent next year (pdf).

“The housing market has certainly welcomed the recent decline in mortgage rates,” stated MBA chief economist Mike Fratantoni in a 2023 forecast. “This decline is reflecting market expectations of being near the peak for short-term rates, as well as increased signs that the U.S. is headed for a recession next year. Weaker growth typically leads to lower long-term interest rates, including mortgage rates.”

For the week ended Dec. 22, the 30-year and 15-year fixed-rate mortgage rates came in at 6.27 percent and 5.69 percent, respectively.

“Heading into the holidays, mortgage rates continued to move down,” said Sam Khater, Freddie Mac’s chief economist, in a statement. “Rates have declined significantly over the past six weeks, which is helpful for potential homebuyers, but new data indicate homeowners are hesitant to list their homes. Many of those homeowners are carefully weighing their options as more than two-thirds of current homeowners have a fixed mortgage rate of below 4 percent.”

The Federal Reserve conceded that a housing bubble formed during the coronavirus pandemic, but the central bank’s inflation-busting monetary tightening efforts could return stability to the real estate and mortgage markets.