Easing mortgage rates and increased inventory in September undercut buyer anxiety from the previous months, leading to a 7.6 percent month over month increase in contract signings.
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Easing market headwinds led to a late-summer rebound in contract signings, according to the National Association of Realtors pending home sales report on Wednesday.
The Pending Home Sales Index (PHSI) increased 7.6 percent month over month to 75.8, the highest PHSI since March. All four regions experienced monthly gains in September, with the West (+9.8% percent to 64.0) and Midwest (+7.1% percent to 75.0) experiencing the biggest increases. The PHSI is based on 40 percent of multiple listing service data and is rated on a scale of 0 to 100, with 100 being equal to the average contract activity in 2001.
Lawrence Yun
“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,” NAR Chief Economist Lawrence Yu said in a statement.“Further gains are expected if the economy continues to add jobs, inventory levels grow, and mortgage rates hold steady.”
Realtor.com Senior Economic Research Analyst Hannah Jones said September’s pending home sales report is a testament to the resilience of today’s homebuyers, who swiftly took advantage of modest declines in mortgage rates and inventory boosts during an otherwise weak summer market.
“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,” she said. “Housing competition has faded nationally as climbing inventory is met with stifled demand.”
Hannah Jones
“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,” she added.
Jones said it’s currently anyone’s guess on whether the rally in contract signings will continue. The main factor, she said, is the upcoming the Bureau of Labor Statistics jobs report. If employment gains fail to meet expectations, that may stifle pending home sales activity for the last quarter of the 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,” she said. “The Fed meeting the following week is another potential source of mortgage rate volatility.”
“Chair [Jerome] 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,” she added.
Meanwhile, Yun offered a prediction about the next two years of home sales, saying that existing-home sales won’t breach the five-million mark until 2026. As for median home prices, he said they’ll reach $410,700 in 2025 and $420,000 in 2026, with mortgage rates vacillating between the 5 and 6 percent range.
“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.”