U.S. Pending Home Sales Fall 7.3% in September to Record Low
Key Facts
The U.S. pending home sales index fell 7.3% in September to its lowest level since the series began in 2001, according to Reuters. The index, published by the National Association of Realtors, dropped to 66.0, a steeper decline than the 0.5% decrease forecast by economists polled by the agency. The contraction followed a modest monthly increase in August, when the index rose 0.3% to 71.2. The August increase had already been announced in the previous month's report, before contract activity turned lower in September. The record low coincided with rising mortgage costs during the month, in a market that has been in a slump since 2022 as financing rates moved away from their pandemic lows.
The pending home sales index covers homes that buyers and sellers have agreed to sell but whose transactions have yet to close, according to the definition in the report published on Investing.com. The measure excludes new construction, focusing on transactions that have entered the contract stage and are awaiting completion. For completed transactions, existing home sales rose 1.5% in September from August, according to TD Bank analysis. Sales reached an annualized pace of 3.99 million homes, a monthly improvement accompanied by a contraction in contracts that had yet to close. Even so, completed sales remained 2.2% below their level in September of the previous year, leaving activity below its year-earlier level despite the increase during the month.
The average rate on a 30-year fixed mortgage rose during September, according to Freddie Mac's weekly archive. The average stood at 6.71% in the survey dated September 3, at the start of the month in which housing contracts declined. By the survey dated September 24, the average rate on loans of the same term had reached 7.03%, increasing the cost of financing home purchases. The rise spanned the period in which pending contracts fell, while completed sales improved from the previous month. These financing levels form part of a broader backdrop of weakness in U.S. housing, which the Associated Press linked in its October report to mortgage rates rising above the low levels reached during the pandemic.
Lawrence Yun had described the pressure borrowing costs were putting on buyers when explaining the market's weakness in August, according to REIT.com. He said that "higher mortgage rates are offsetting the increase in purchasing power from job and income growth," pointing to the effect of financing on households' ability to buy. His explanation linked the boost that jobs and incomes provide buyers with the countervailing pressure that higher mortgage rates exert on purchasing power. The assessment came before the average fixed mortgage rate rose during September, against a backdrop of persistent weakness in the U.S. housing market. The Associated Press said the market slump began in 2022 as mortgage rates climbed from pandemic lows, making purchase financing a central part of the backdrop to the slowdown.
In a separate assessment of contract activity during September, Redfin said its measure of pending home sales fell 4% from the previous month. It added that 14.5% of home purchase deals that went under contract during the month were canceled, reflecting difficulties completing some agreements between buyers and sellers. That share covers agreements entered into in September and subsequently canceled, during the same period in which the company's measure recorded a monthly decline. The cancellations place the course of transactions after signing within the picture of weak housing activity, alongside the decline in new contracts reported by the company. Redfin's measure fell alongside the decline in the National Association of Realtors' index, while monthly growth in completed sales continued to be accompanied by a year-on-year decline.
The cost of financing home purchases continues to be tracked through Freddie Mac's weekly mortgage rate survey following the increase recorded during September. The institution releases the survey results every Thursday at 12 noon Eastern Time, according to the publication schedule on its website. The survey includes the average rate on a 30-year fixed mortgage, which rose during the month in which contracts fell to a record low. On the monetary policy calendar, the next Federal Open Market Committee meeting takes place in October, according to the Federal Reserve's official calendar. The meeting is scheduled for October 27 and 28, following a month that combined higher mortgage costs with declining housing contracts, despite the monthly improvement in completed existing home sales.