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Pending home sales increased in March, reaching their highest level of the year so far, while new-home sales also rose last month. But with mortgage rates now in the 7% range, which could scare home buyers moving forward.
The National Association of REALTORS®’ Pending Home Sales Index—a forward-looking indicator of home sales based on contract signings—increased 3.4% in March. While that is the strongest reading of 2024, “it still remains in a fairly narrow range over the last 12 months without a measurable breakout,” says NAR Chief Economist Lawrence Yun. “Meaningful gains will only occur with declining mortgage rates and rising inventory.”
Pending home sales posted the highest gains in the South and West, with both regions up about 7% compared to February. Contract signings also increased in the Northeast, up 2.7%. The Midwest was the only region of the U.S. to see pending home sales falter last month, down 4.3%, but sales are still higher compared to a year ago, according to NAR’s index.
NAR is forecasting existing-home sales to increase by 9% in 2024 and 13.2% in 2025. NAR also forecasts housing starts to increase 1.2% this year and about 5% in 2025. “Home sales have lingered at 30-year lows, and since 70 million more Americans live in the country now compared to three decades ago, it’s inevitable that sales will rise in the coming years,” Yun says. “Inventory will grow steadily from more home construction, and various life-changing events will require people to trade up, trade down or move to another location.”
Home Prices to Moderate But Remain High
As home sales steadily rise, NAR is projecting that home prices will surge to record highs. “Given the lingering housing shortage, home prices will march higher, albeit much more slowly than in the past,” Yun notes. “Home prices rising faster than income growth is not healthy and adds challenges for first-time buyers.”
The association is predicting the median home price nationally to rise by 1.8% in 2024 and reach a record high of $396,800 (compared to $389,800 in 2023). NAR is forecasting a further increase of 1.8% in 2025, which would bring the median home price to $403,800. The median price for a newly constructed home also is expected to move higher but at a slower pace, with NAR projecting a 0.6% increase to $426,100 in 2024. NAR says the smaller price increases in new-home construction reflects the trend of more builders constructing smaller homes as they aim to scale back prices.
“Home prices are expected to rise roughly in line with consumer price inflation and wage growth over the next two years,” Yun says. “Most homeowners are on strong financial footing in current market conditions, with only 2% of sales classified as being distressed. … Inventory will gradually rise from recent growth in home building. Additionally, many sellers who delayed listing in the past two years will start putting their homes on the market to move to a different home that better fits their new life circumstances—such as changes in family composition, jobs, commuting patterns and retirees wanting to be closer to their grandkids.”