PENDING HOME SALES FELL 4.1 PERCENT IN FEBRUARY

Compared to January, signed contracts for U.S. home sales slipped 4.1 percent in February, and 5.4 percent from a year earlier, the National Association of Realtors (NAR) reported.
February marked the fourth consecutive month of decline.
By region:

• sales were up 1.9 percent in the Northeast, but down 9.2 percent year on year;
• in the Midwest, month to month sales fell 6 percent; year-over-year, the slide was 5.2 percent;
• sales in the South were down 4.4 percent and 4.3 percent respectively;
• in the West, sales fell 5.4 percent for the month and 5.3 percent for the year.

Sales are slipping as the real estate industry enters what is normally its busiest season.
The new season also is being dogged by higher mortgage interest rates (see related story in this issue).
“The 30-year, fixed-rate mortgage spiked .73 of a percentage point from December 2021 through February 2022,” Edward Seiler, the Mortgage Bankers Association’s vice-president of housing economics, told CNBC.
Together with higher home prices, “a mortgage applicant’s median principal and interest payment in February jumped $127 from January and $337 from one year ago,” he noted.
The median interest rate for a conventional 30-year, fixed-rate mortgage began this week at an average of about 4.5 percent.
Today’s higher mortgage payments are taking an additional 8.3 percent of buyer’s incomes in February, compared to January, and a 22-percent hike from February 2021, the NAR said; for lower-income buyers, the bite is an additional 10 percent from month to month.
“As we move into the spring season, markets remain clearly tilted in sellers’ favor,” senior economist George Ratiu at Realtor.com said to CNBC.
“However, with mortgage rates moving toward 5 percent, we are seeing early signs of a shift in housing fundamentals, as many people looking for a home have hit a ceiling on their ability to afford a home,” he added.
TREND FORECAST: A law of financial gravity says that when interest rates go up, home sales go down.
However, when interest rates jump after home prices have been setting record highs for months (see “Home Sale Rush,” 16 Nov 2021), the housing market will crash like a plane with no more fuel on board.
We maintain our forecast that home sales will shrink in proportion to the U.S. Federal Reserve’s increases in interest rates and when the Fed’s rate reaches or passes 1.5 percent, the U.S. housing and equity markets will show sudden, dramatic reversals.