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Pending home sales declined for the second consecutive month in July and for the eighth time in the last nine months, according to the National Association of Realtors (NAR). After a decline of 8.6% in June, the Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contract signings, decreased 1% to 89.8 in July. On a year-over-year (YOY) basis, pending transactions are down 19.9%. According to the NAR, an index reading of 100 is equal to the level of contract activity in 2001.

“In terms of the current housing cycle, we may be at or close to the bottom in contract signings,” says NAR chief economist Lawrence Yun. “This month’s very modest decline reflects the recent retreat in mortgage rates. Inventories are growing for homes in the upper price ranges, but limited supply at lower price points is hindering transaction activity.”

According to the NAR, housing affordability reached its lowest level since 1989 in June. Accounting for a 30-year fixed-rate mortgage and a 20% down payment, the monthly mortgage payment on a typical home jumped to $1,944, an increase of $679 on a YOY basis.

“Home prices are still rising by double-digit percentages year over year, but annual price appreciation should moderate to the typical rate of 5% by the end of this year and into 2023,” Yun says. “With mortgage rates expected to stabilize near 6% alongside steady job creation, home sales should start to rise by early next year.”

The PHSI fell 1.9% on a month-over-month basis in the Northeast and 15.4% compared with July 2021. In the Midwest, the PHSI fell 2.7% in July, a 13.4% decrease from a year ago.

Pending sales fell 1.1% in the South in July, a 20% YOY decrease. The West index increased 2.2% from June to July, but remains 30.1% lower than in July 2021.