A leading indicator of future home closings unexpectedly increased in September, defying expectations amid higher mortgage rates. The National Association of Realtors revealed that pending home sales, an index tracking contract signings for existing homes, saw a slight gain of 1.1% from August’s reading. This came as a surprise to economists, who had predicted a decline to the lowest level since the report’s inception in 2001.
The significance of this index lies in its ability to serve as a litmus test for existing-home sales in the coming months. However, it is important to note that pending sales are recorded when a home goes under contract, typically a month or two before the closing date. It is only after the closing that the trade group’s more detailed existing-home sales report reflects the actual sale.
While pending home sales can offer insights into future changes in sales volume, pending deals are not always guaranteed to proceed. In fact, Redfin reported a higher rate of home purchase agreements falling through this week, the highest since October 2022.
Lawrence Yun, NAR’s chief economist, expressed cautious optimism amidst the latest data. Despite the slight increase in pending contracts, they still remain at historically low levels due to the impact of the highest mortgage rates seen in 20 years. Tight inventory further hampers sales but contributes to elevated home prices.
In summary, there may be brighter days on the horizon for home sales, even with the challenges posed by mortgage rates and limited inventory.
Real Estate Market Shows Signs of Recovery
The market for previously owned homes has faced challenges this year due to higher mortgage rates, causing both buyers and sellers to stay put. In a recent forecast by the trade group, it is projected that home sales for this year will total 4.15 million, the lowest annual count since 2008.
However, there is hope on the horizon as the forecast suggests that the slump is nearing its end. The trade group anticipates that the quarterly seasonally adjusted annual existing-home sales rate will hit its lowest point at 4.01 million in the fourth quarter of this year, before rebounding in 2024.
Looking ahead to next year, sales are expected to increase to 4.71 million as mortgage rates drop to 6.3% by the fourth quarter. The trade group also predicts a slight annual gain of 0.1% in the median existing-home price in 2023, followed by a 0.7% increase in 2024.
While mortgage rates have been on the rise, the ability of homebuilders to create more inventory has helped boost new-home sales. Despite this, the importance of increased inventory to facilitate overall movement in the housing market cannot be overstated, says the trade group.
In fact, demand for new homes has surged as supply for previously owned homes remains limited. September saw a significant increase in new home sales as buyers eagerly took advantage of builders’ offerings and incentives, according to government data.
In conclusion, the real estate market shows promising signs of recovery. With anticipated improvements in sales and a potential decrease in mortgage rates, both buyers and sellers can look forward to a more favorable market in the coming years.