Home sales have yet to awaken from their long slumber, which began, perhaps – in the mid-1990s. That’s the last time many economic analysts considered the U.S. housing market to be truly balanced, in terms of inventory, mortgage rates, and the like.
Pending home sales rose modestly this August by 0.6%, the National Association of Realtors (NAR) reported this week. Year over year, pending transactions were down 3%. The latest data is indicating growth – albeit slow – spurred by falling mortgage rates and not much more.
“A slight upward turn reflects a modest improvement in housing affordability, primarily because mortgage rates descended to 6.5% in August,” NAR Chief Economist Lawrence Yun pointed out. “However, contract signings remain near cyclical lows even as home prices keep marching to new record highs.”
Following Redfin’s report that sales of existing homes fell 3.1% year over year in August, Fannie Mae economists anticipated home sales to be at their slowest pace since 1995.
Regional trends tell the story of improving affordability, though not across the map.
While the Midwest, South, and West posted monthly gains in transactions, the Northeast recorded a loss.
Year-over-year, the West registered growth, but the Northeast, Midwest and South declined.
“In terms of home sales and prices, the New England region has performed relatively better than other regions in recent months,” Yun said. “Contract signings rose in both the most affordable and most expensive regions – the Midwest and West, respectively – because mortgage rates have fallen nationally. Housing affordability will continue to see notable improvements.”
Mortgage rates just reached their lowest level in two years, with the 30-year fixed-rate mortgage averaging 6.08% as of September 26, according to Freddie Mac.
Housing payments also made their sharpest drop in more than four years leading up to the Federal Reserve’s highly anticipated rate cut.
First American Deputy Chief Economist Odeta Kushi noted that pending home sales continue to hover near cyclical lows.
“While mortgage rates decreased during the month, the decline was insufficient to entice many buyers back into the market,” Kushi said. “Challenging affordability conditions and historically low inventory persist as significant barriers for home buyers.”
She was, however – more optimistic about purchase mortgage applications, which trended upwards in September.
This, Kushi said, is a sign “that the once frozen housing market may be starting to thaw.”
New home sales, reported the day prior, surpassed the predicted count of 700,000, reaching 716,000 in August. Though a slight decline from July, that was 10% higher than August 2023.
“While existing-home sales have struggled to gain any momentum, the new-home market has remained a relative[ly] bright spot in the housing market due to builders’ ability to offer incentives and bring buyers off the sidelines,” Kushi pointed out.
Better news on the horizon, she added – is the increase in builder sentiment this September.
“The long-term housing shortage, lower mortgage rates, and builders’ ability to offer incentives will help to buoy new single-family sales. However, builders continue to grapple with challenges stemming from the “5 Ls”: labor, lots, legal issues, lumber, and lending. Despite the challenges, the new-home market will likely continue to outperform the existing-home market over the near term because, unlike existing homeowners, builders are not rate locked-in."
