Limited Housing Supply Constrained Pending Home Sales in March

Pending home sales fell in March for the first time since November 2022, as high interest rates and a low inventory of homes for sale squeezed the U.S. housing market. 

Signed contracts for the sales of existing homes dropped 5.2% through March, according to the National Association of Realtors. From March 2022, pending transactions dropped by 23.2% with year-over-year losses in all four of the nation’s regions.

Uncertainty about interest rates and the state of the economy, and limited inventory are discouraging buyers just as the U.S. housing market heads into the peak months of the spring and summer.

"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."

The Pending Home Sales Index fell 8.1% in the Northeast, a decline of 24.3% from March 2022. In the Midwest, the index groped 10.7% from the previous month and 21.5% a year ago. In the South, the index improved 0.2% in March, from February and fell 19.8% from March 2022. In the West, the index jumped 8% over the previous month and fell 32.2% year-over-year. 

Forecasters are predicting a pickup in the housing market heading into 2024, once prospective buyers have a bit more certainty about the Federal Reserve’s success taming inflation and mortgage rates dip back down. 

The NAR anticipates existing-home sales will steadily improve after March’s decline, but will still come short of the sales in 2022. Existing home sales are anticipated to drop 9.3% year-over-year to 4.56 million, while 2024 is expected to bring recovery from the losses expected this year, with a 15.4% increase in existing home sales, landing at 5.26 million. 

Newly-built home sales are forecast to increase throughout 2023, ending the year with a 4.5% increase to 670,000, as more homes under construction hit the market. Next year will bring continued gains for the new construction segment, gaining an anticipated 11.9% over the year. 

NAR anticipates economic improvements through the end of 2023, with a predicted drop in the 30-year fixed-rate mortgage to 5.6% from 6% in 2024. 

The group also predicts that, in response, housing starts will drop by 7.3% in 2023 to 1.44 million, but that 2024 will bring another pickup in new housing starts. NAR anticipates starts to rise 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."