Pending home sales sink in February, setting a grim tone as housing market enters key spring season

A home with a sign indicating that it is under contract to be sold is seen in a neighborhood of downtown Washington.

In a bad sign for the housing market, pending home sales, which measure signed contracts on existing homes, fell 4.1% in February compared with January.

Compared with February 2021, sales were down. Analysts were expecting a small gain. The fourth straight month of declines in pending sales is an indicator of future closings.

Since this count is based on signed contracts in February, when mortgage rates really started to take off, it is a strong indicator of how the market is reacting to the new rate environment.

Rates went up in January and February. The average 30-year fixed mortgage rate is now more than a percentage point higher than it was a year ago.

In the Northeast, pending sales rose 1.9% month to month, but were down 9% from a year ago. Sales in the Midwest were down 5.2% in February. In the South, sales fell 4.4% for the month and 4.3% for the year, while in the West they fell 5.4% for the month and 5.3% for the year.

Spring is the busiest time of the year for the housing market and the jump in mortgage rates could not come at a worse time.

Paul Legere, a buyer's agent with theJoel Nelson Group in Washington, D.C., said that most of his buyers are adjusting their target to buy the home they can afford at the higher rates. Buyers are not choosing to rent in my market.

Potential buyers are facing an expensive market. The median monthly payment on a new mortgage is now taking up a larger share of a consumer's income. According to the Mortgage Bankers Association, it jumped 8.3% in February. It was 22% higher than it was in February. The monthly payment for borrowers on the lower end of the market is up 10% month to month.

The 30-year fixed-rate mortgage went up 73 basis points. The median principal and interest payment for a mortgage application in February was $337 more than in January and February of last year.

The market is tight and pricey. They have to factor in inflation in other parts of their budgets. After a brief reprieve in the fall of last year, list prices for homes reaccelrated.

As we move into the spring season, markets are clearly tilted in favor of sellers.