In a grim sign for the housing market’s busiest season, pending home sales, which measure signed contracts on existing homes, fell 4.1% in February compared with January, according to the National Association of Realtors.

Sales were down 5.4% compared with February 2021. Analysts were expecting a slight gain. This is the fourth straight month of declines in pending sales, which are an indicator of future closings, one to two months out.

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, especially as it is entering the crucial spring season.

Rates began rising in January and continued sharply higher in February. The average rate on the 30-year fixed mortgage is now more than a full percentage point higher than it was one year ago.

Regionally, pending sales rose 1.9% month to month in the Northeast but were down 9.2% from a year ago. In the Midwest, sales decreased 6.0% for the month and were down 5.2% from February 2021. In the South, sales fell 4.4% monthly and 4.3% annually, and in the West they were down 5.4% for the month and 5.3% from a year ago.

The jump in mortgage rates could not come at a worse time, as spring is historically the busiest season for the housing market.

“Most of my buyers are adjusting their target to buy the home they can afford at the higher rates,” said Paul Legere, a buyer’s agent with Joel Nelson Group in Washington, D.C. “There has been a pronounced sense of urgency to lock in a mortgage rate and get into a property. In my market at least, buyers are not electing to rent as an alternative.”

Today’s potential buyers are facing an expensive market. The median monthly payment on a new mortgage is now taking up a much larger share of a typical consumer’s income. It jumped 8.3% in February compared with January, according to a new index from the Mortgage Bankers Association. It is nearly 22% higher than it was in February 2021. For borrowers on the lower end of the market, that monthly payment is up nearly 10% month to month.

“The 30-year fixed-rate mortgage spiked 73 basis points from December 2021 through February 2022. Together with increased loan application amounts, a mortgage applicant’s median principal and interest payment in February jumped $127 from January and $337 from one year ago,” said Edward Seiler, MBA’s associate vice president of housing economics.

Buyers continue to face a tight and pricey market. Now they have to factor in inflation in other parts of their budgets, as well. List prices for homes reaccelerated after a brief reprieve in the fall of last year, according to Realtor.com.

“As we move into the spring season, markets remain clearly tilted in sellers’ favor,” said George Ratiu, senior economist at Realtor.com. “However, with mortgage rates moving toward 5%, we are seeing early signs of a shift in housing fundamentals, as many people looking for a home have hit a ceiling on their ability to afford a home.”

Jim Bourg | Reuters