NAR released the March Pending Home Sales report today: +1.5% month-over-month, -1.1% year-over-year. The Northeast and South gained ground. The Midwest and West gave some back. Chief Economist Lawrence Yun pointed to "pent-up demand" pushing contracts through despite mortgage rates that haven't materially moved in months.
For an operator, this is a quiet but important signal.
The marginal buyer in this market — the one who finally said yes despite rates sitting in the 6%+ range — has done the calculation that the 3% mortgages of 2021 aren't coming back inside their decision window. They're not waiting anymore. They're transacting.
That tells you something about where we are in the cycle.
For the last 18 months, conversations with healthcare professionals shopping their first or second rental have been dominated by one assumption: rates will come down, and the deals I want will pencil then. So they wait. They watch. They underwrite at 7% and decide it doesn't work.
The rising pending sales number is the market telling you that the rest of America has stopped waiting. The deals being signed today are being signed at the rates that exist today. By the buyers willing to act on the world as it is.
Three observations for a healthcare household sitting on a deal that doesn't pencil at current rates:
The market is recalibrating around current rates, not future ones. Your underwriting should too. If the deal works at 7%, take it seriously. If it works only at 5.5%, it isn't a deal. It's a speculation on Fed behavior.
Sellers are slowly adjusting expectations. Watch days-on-market in your target zip codes. The discount to list is widening in a lot of markets, even as overall volume picks up. The seller psychology shifts six months after the buyer psychology does.
Inventory is loosening selectively. The institutional buyers that hoovered up product in 2021-2022 are quieter. There's more room at the table now, especially in the small-multifamily and modest-commercial segments where institutional capital has the least patience.
Worth doing this month: pull your existing target list. Re-run the math at today's rates. Some deals you walked away from six months ago may have moved underneath you.
The buyers transacting now aren't smarter than the ones waiting. They're operating in the world as it is. That's the gap.
— John