Contracts to buy U.S. previously owned homes dropped for a fourth straight month in February, weighed down by a persistent shortage of properties, and activity could remain sluggish amid increasing mortgage rates and high house prices.
The National Association of Realtors (NAR) said on Friday its Pending Home Sales Index, based on signed contracts, fell 4.1% last month to 104.9. Pending home sales declined in the South, Midwest and West, but rose in the Northeast.
Economists polled by Reuters had forecast contracts, which become sales after a month or two, rebounding 1.0%. Pending home sales decreased 5.4% in February on a year-on-year basis.
Sales of previously owned homes tumbled in February, but remained above their pre-pandemic level. The inventory of used houses is at record lows. Shortages and expensive building materials have made it harder for builders to ramp up construction, leading to double-digit growth in houses prices.
Mortgage rates surged in February and have continued to push higher after the Federal Reserve last week raised its policy interest rate by 25 basis points, the first hike in more than three years. They are likely to continue accelerating as Fed Chair Jerome Powell on Monday said the U.S. central bank must move "expeditiously" to raise rates and possibly "more aggressively" to keep high inflation from becoming entrenched.
The 30-year fixed rate averaged 4.42% this week, the highest since January 2019, from 4.16% in the prior week, data from mortgage finance agency Freddie Mac showed on Thursday.
According to the NAR, higher mortgage rates and sustained house price inflation had resulted in a 28% year-over-year jump in mortgage payments as of February.
"The surge in home prices combined with rising mortgage rates can easily translate to another $200 to $300 in mortgage payments per month, which is a major strain for many families already on tight budgets," said NAR Chief Economist Lawrence Yun.
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