What the August pending home sales data shows
Pending home sales ticked up a modest 0.6% in August as buyers largely stayed on the sidelines, waiting for lower mortgage rates later this year. Mortgage rates fell from 6.7% to 6.4% in the month of August, reaching the lowest level in over a year, but not quite low enough to entice buyers. Rates have since fallen to 6.09%, their lowest level in 2 years, which is likely to stoke demand moving forward. New home sales, which are also based on contract signings, fell 4.7% in August, but were up year-over-year as buyers showed still-strong interest in available new home inventory, which has shifted toward smaller and more affordable homes. Despite having more buying power and more for-sale home options, buyers are proceeding cautiously, perhaps waiting to see homeownership costs soften further.
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.
Broken down regionally, the Midwest, South and West each posted month-over-month gains, but only the West picked up year-over-year. Contract signings increased monthly by 3.2% each in the Midwest and the West, and by 0.1% in the South, but fell 4.6% in the Northeast. On a yearly basis, the South (-5.3%), Midwest (-3.6%) and Northeast (-2.2%) each saw declines, while the West (+2.7%) saw improvement.
What this means for buyers, sellers, and the housing market
Mortgage rates have fallen to a two-year low just in time for the Best Time to Buy. As the leaves turn, seasonal housing dynamics align to offer the best combination of conditions for buyers, including below-peak home prices, impressive housing inventory, more price-reductions, and less competition from other buyers.
This fall’s housing market is shaping up to be even better than expected due to falling mortgage rates, which have boosted buying power by more that $74,000 compared to October 2023.
However, the combination of high home prices and still-elevated mortgage rates could intimidate some home shoppers. Savvy buyers hoping to save a buck can get creative and look specifically for homes that utilize value phrases, such as ‘priced to sell’, in their listing description, an inclusion that translates to an average discount of 8.5%.