What the September pending home sales data shows
Pending home sales surged 7.4% in September as mortgage rates fell as low as 6.08% in the month, spurring buyers to take advantage of the temporary reprieve. Pending home sales also increased annually, climbing 2.6% compared to September 2023. New home sales, which are also based on contract signings, perked up in September, notching 4.1% higher as buyers responded to slightly improved affordability in the new construction segment as well. Rates have since climbed to 6.54%, possibly sapping some of the energy starting to build in the market.
Contract signings picked up in all four regions month-over-month, increasing the most in the West (+9.8%), followed by the Midwest (+7.1%), the South (+6.7%) and the Northeast (+6.5%). On an annual basis, pending home sales increased in the West (+12.3%) and the Northeast (+3.3%) and held steady in the South and Midwest.
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.
While housing remains relatively expensive, home shoppers have honed in on affordable, mid-sized markets in the Midwest and Northeast, as discussed in the Realtor.com/WSJ Housing Market Ranking. Housing competition has faded nationally as climbing inventory is met with stifled demand. As a result, buyers are finding more flexibility in the market and paying slightly less as a down payment than in the previous quarter and previous year.
This Friday’s jobs report will be key in informing mortgage rates in the short term. If the employment gains deviate from expectations in either direction, mortgage rates are likely to swing accordingly. The Fed meeting the following week is another potential source of mortgage rate volatility. Chair Powell’s comments about the future rate path is likely to have a bigger impact on mortgage rates than the rate change itself, assuming the market is correct about a 25 basis point rate reduction.