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Real Estate Trends: Pending home sales have fallen for six straight months


Key points to remember

  • November 2022 pending home sales were down 4% from October and 38% from a year ago.
  • Many factors are behind the slowdown, including high interest rates, fears of a recession and unprecedented home sales in recent years.
  • While some experts predict a slight decline in house prices, many expect the housing market to rebound by 2024.

Pending home sales have fallen over the past six months as buyers put the brakes on major purchases. But other issues are at play, including comparing today’s numbers with the unprecedented demand during the pandemic. Here’s the latest pending home sales data and what it could signal for the future.

What are pending home sales?

A home is pending sale when the buyer and seller enter into an agreement to purchase a home. This is also called contracted because both parties have contractually agreed to the terms and conditions of the sale, including price, inspections, contingencies, etc. The sale of the home will be finalized or completed once the lending bank reviews all of the buyer’s documents, approves the loan, and the buyer and seller meet to sign the documents. This process usually takes about 30-45 days.

A home designated as a pending sale has reached a point where the seller has chosen a buyer. No other buyers can bid on the house at this point, and the seller is contractually bound to sell the house to the accepted buyer. If a seller decides to break the contract to sell to another buyer, the original buyer can sue the seller for breach of contract.

Pending home sales figures are a major economic indicator of growth in the housing market and the economy as a whole. Homebuyers, whether buying their first home or moving from one home to another, help fuel the economy by buying their new home. These are bulky items such as replacement appliances or new sheets for bedding.

A look at the last six months of home sales

The National Association of Realtors (NAR) tracks pending home sales data from more than 100 multiple listing services and 60 major brokers across the country. It divides the country into four quadrants from which it collects data to create the Pending Home Sales Index (PHSI). The NAR prefers to use this data rather than other indices, such as housing starts or new home sales, because it believes that completed sales are the best indicator of actual home sales. He acknowledges that not all pending home sales close, but 80% of all pending home sales close, giving PHSI the most accurate data.

The NAR uses an index of 100 for a baseline. Numbers below 100 represent a slowdown in sales, and numbers above 100 indicate an increase in sales. December sales are published towards the end of January of the following year. The following list is for June through November 2022 and represents home sales data for the entire United States:

  • June: 90.7
  • July: 90.2
  • August: 88.5
  • September: 80.8
  • October: 77.0
  • November: 73.9

Dig deeper into the numbers

The figures show a steady and relatively steep decline over the past six months of available data. The home sales reversal began in April 2022 after the Federal Reserve began raising the federal funds rate in March 2022. The initial rate hike was 0.25%, enough to drive an initial reduction of 4 % of pending home sales. Then in June, the Federal Reserve raised rates by 0.75%. This, combined with earlier rate hikes, led to pending home sales falling 9% from the prior month and down 20% year-over-year. The downward trend continued, with November pending sales down 38% from a year ago.

In years past, the Federal Reserve has long held the federal funds rate at 0.25% because the economy was experiencing little inflation and prices were relatively stable in the housing market. During the pandemic, loose government lending standards released billions of dollars into the economy, destabilizing house prices and causing a bubble. Lending institutions and investors took advantage of lax lending, and investors began buying homes to flip them while banks lent money to almost everyone. These factors, combined with an already tight housing market and supply chain issues, have pushed up house prices.

Most people buy a home based on their ability to make monthly payments. Bidding wars and people paying more than asking price have made it harder for the average buyer to buy a home. Regular market activity has been impacted by a large percentage of people leaving cities as businesses have adopted work-from-home options due to the pandemic. This freed people from the need to live a short distance from their place of work. Additionally, some buyers were investors looking to rent out the homes they purchased for passive income.

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Once the Federal Reserve raised the federal funds rate, borrowing money became more expensive and rapid inflation ate away the average American’s purchasing power. The increase in the mortgage interest rate has carried away many potential investors. Additionally, many people planning to move during the pandemic have already done so. Combine these factors with higher interest rates and you have fewer pending home sales.

Will house prices fall in 2023?

Home prices will most likely fall in 2023, but it’s hard to predict by how much. Housing varies widely from market to market, and sellers don’t like to lose money on a sale, even if they sell for more than they originally spent. They often hold for their perceived maximum value, which can keep a house on the market for an extended period of time until they eventually reduce the price to sell the house.

Another issue that will put downward pressure on house prices is that borrowing money for a mortgage is much more expensive. As of this writing, the interest rate on a traditional 30-year mortgage is around 6.5% for a borrower with excellent credit. This translates to a monthly payment of $1,516 on a mortgage of $240,000, assuming a down payment of $60,000. Often buyers struggle to find 20% to put aside and tend to borrow more for the mortgage, which increases their monthly payments.

Last but not least, lenders have tightened their lending standards in response to rising interest rates and the potential recessionary environment. It’s harder for borrowers to get a mortgage, and fewer qualified buyers mean homes stay on the market longer and inventory rises. This also has the effect of lowering house prices.

Many experts believe that a drop in house prices will be more regional than national, with some regions seeing bigger price drops than others. Even with price declines, most economists see a rebound in house prices by 2024.


After a boom in home sales during the pandemic, it is only natural for the market to slow down. Add to that higher interest rates and fears of a recession, and more potential buyers are sitting on the sidelines waiting for more clarity. It shouldn’t be surprising to see pending home sales drop further. However, a bigger than expected drop could signal that consumers are preparing for a worse recession than initially expected.

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