Lower mortgage rates and rising supply have already started to make their mark on pending home sales, which jumped to their highest level since March this September. However, housing economists are divided on whether this rush will continue through the fall.
Pending home sales increased 7.4% from August's count, the National Association of Realtors reported Wednesday. The NAR’s Pending Home Sales Index (PHSI) rose in all four U.S. regions, with the West in the lead.
Year-over-year, contract signings grew in the Northeast and West and were unchanged in the Midwest and South. Pending transactions increased nationally by 2.6% YOY.
“Contract signings rose across all regions of the country as buyers took advantage of the combination of lower mortgage rates in late summer and more inventory choices,” commented NAR Chief Economist Lawrence Yun. “Further gains are expected if the economy continues to add jobs, inventory levels grow, and mortgage rates hold steady.”
Over the next two years, Yun foresees slower home price appreciation and corresponding increases in sales.
“After two years of sluggish home sales in 2023 and 2024, existing home sales are forecasted to rise to 4.47 million in 2025 and more than 5 million in 2026,” he said. “During the next two years, expect a slower rate of growth in home prices that’s roughly in line with the consumer price index because of additional supply reaching the market.”
Yun predicts the median existing home price will rise to $410,700 in 2025 and to $420,000 in 2026. The annual 30-year fixed mortgage rate will slide to 5.9% in 2025 but then move higher to 6.1% in 2026.
Pending home sales began their most recent ascent in August, rising 0.6% from July ahead of September’s 7.4% leap.
CoreLogic Chief Economist Dr. Selma Hepp called September’s jump in pending sale transactions “short-lived.”
“A slight improvement in pending sales activity reflects August’s sharp decline in mortgage rates, which helped boost housing demand and provide some much-needed consumer optimism, particularly for the purchase of big items,” Hepp said. “However, with rates pushing back to 7%, the rebound in pending activity is likely short-lived and is unlikely to be enough to help 2024 home sales exceed 2023 levels.”
First American Deputy Chief Economist Odeta Kushi tended to agree with this sentiment.
"Unfortunately, purchase applications have since moved lower in October due to a re-acceleration in mortgage rates," she pointed out. "Buyers and sellers alike are very interest-rate sensitive.”
Analysts' baseline expectation is that mortgage rates will decline gradually, enticing buyers and sellers back to the market.
“The outlook for mortgage rates will depend on incoming labor market and inflation data, along with any signals from the Fed about future rate cuts," Kushi added. "If upcoming data suggests weaker-than-expected labor market conditions or an economic slowdown, we could see some downward pressure on the 10-year Treasury yield and mortgage rates.”
The Northeast PHSI expanded 6.5% from August to 65.6, up 3.3% from Sept. 2023. The Midwest index surged 7.1% to 75 in September, unchanged from the same time last year.
The South PHSI improved 6.7% to 89 in September, unchanged from a year ago. The West index ballooned by 9.8% from the prior month to 64, up 12.3% from Sept. 2023.
Total housing inventory edged up 1.5% in September from August to 1.39 million units. Existing home sales edged down 3.5% YOY.
The NAR’s next Pending Home Sales Index is expected to be released on November 27, and existing home sales for October are set for release on November 21.
