Builders Head Lower As Pending Home Sales Soften

LARKSPUR, CA - FEBRUARY 21:  A sale pending si...

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After months of encouraging signs, the housing market is starting to lose steam. The National Association of Realtors said pending home sales, which track houses under contract, dropped 0.4% in June, after rising 6.7% in May.

This comes on the heels of rising rates, with 30-year fixed mortgages averaging 4.37%, compared to 3.35% in May, according to Freddie Mac Freddie Mac. “The steeper rates are adding plenty of anxiety to the market and causing some buyers to rethink their home purchase,” said David Blitzer, managing director and chairman of the SP Index Committee.

While still hovering above historic lows, rising interest rates means higher monthly mortgage payments and alienates certain buyers whose finances are too tight to withstand the slight increase.

Aside from the realities of more expensive borrowing costs as the Federal Reserve begins to put brakes on its bond buyback program that has kept rates low for years, June’s decline in pending home sales also has a seasonality aspect.

“Buyers want to move into homes by Labor Day, or before the start of the new school year, causing May to see an uptick in closings,” Blitzer adds. “We’re past that seasonal peak, so it’s not uncommon to see some flatness afterwards.”

While the housing market is starting to descend to a more realistic level, that’s healthy for a market attempting to recover from one of the most severe housing bubbles. Blitzer expects the market to continue to advance, but at a slower pace.

Housing isn’t just a national story. Pending home sales remained flat in the Northeast in June, while the Midwest and South saw a 1% and 2.1% decline, respectively. The West was the silver lining, posting a 3.3% rise.

Housing stocks had mixed reactions, with PulteGroupe and D.R. Horton closing in positive territory on Monday, especially after last week’s lackluster earnings report, while shares of builders Lennar Lennar Corporation and KB Home closed in the red.

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