What the July pending home sales data shows
Pending home sales dropped 5.5% in July as affordability remained a challenge for homebuyers, despite easing mortgage rates through the month. Pending home sales were 8.5% lower year over year and at the second-lowest seasonally adjusted level in the data’s history, behind April 2020.
Though rates remain relatively high, the recent progress is a win for buyers who have been on the sidelines, waiting for their moment to hop into the market.
New-home sales, which are also based on contract signings, jumped 10.6% in July as buyers took advantage of lower rates and ample new-home inventory. Existing-home sales also ticked slightly higher in July, suggesting that the summer’s slow market might see some new energy as rates move lower.
Buyers looking to reenter the market will be pleased to find inventory at its highest level since 2020 and price reductions near pre-pandemic levels.
The housing market continues to vary regionally, but pending home sales fell monthly in all four regions and fell annually in all regions except the Northeast. Contract signings decreased monthly by 7.8% in the Midwest, 6.5% in the South, 3.8% in the West, and 1.4% in the Northeast.
Annually, the seasonally adjusted rate of contract signings decreased 11.5% in the South, 11.4% in the Midwest, and 6.0% in the West, but the Northeast saw a 2.4% increase. This year’s Hottest ZIP Codes report highlights the sustained popularity of well-located Northeast ZIP codes that offer value within commuting distance of large economic hubs.
What this means for buyers, sellers, and the housing market
Pending home sales, or contract signings, measure the first formal step in the home sale transaction, namely, the point when a buyer and seller have agreed on the price and terms.
Pending home sales tend to lead existing-home sales by roughly one to two months and are a good indicator of market conditions. High mortgage rates and home prices kept buyer demand quashed this summer.
The recent mortgage rate improvement is good news for the market, but many buyers are holding out for more significant rate movement.
As has been the case over the past couple of years, today’s housing market hinges on affordability. Though inventory has improved significantly year over year, and homes are spending more time on the market, today’s home prices have not fallen significantly from year-ago levels, and are just a few thousand dollars below the 2022 peak.
As a result, many buyers, though eager, still cannot afford to participate in today’s market, and home sales, including pending home sales, still lag year-ago levels.
Even if today’s market is out of range, buyers can start preparing for a home purchase by doing a bit of legwork, such as improving their credit score, to ensure they secure the lowest possible rate on a home loan.