Pending home sales saw their biggest gain in more than four years in September, as a late-summer dip in borrowing costs and more selection on the market lured buyers.
An index of contract signings for existing homes
Despite the increase, the index level remains historically low in data going back more than two decades as many prospective buyers still await a decline in mortgage rates.
"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 Yun said in a prepared statement. "Further gains are expected if the economy continues to add jobs, inventory levels grow and mortgage rates hold steady."
September's improvement came despite soaring home prices and high financing costs that have yielded one of the least affordable housing markets on record and frozen what had been a hot existing-home market during the pandemic. Closings on previously owned homes had fallen to an almost 14-year low last month.
The shortage of homes available to purchase has been a major problem, exacerbated by the so-called lock-in effect, seen when homeowners are reluctant to sell and lose their current, low mortgage rates. Inventory has, however, been creeping up in recent months and reached close to a four-year high last month.
Pending sales last month got a boost from falling mortgage rates, which dropped to a two-year low of 6.13% in September after the Federal Reserve lowered its benchmark rate by a half percentage point. That encouraged more people to test the market, according to Yun. However, rates have since risen to 6.73%, after strong employment and inflation readings prompted bets the Fed will cut rates more slowly in coming months.
Pending sales rose in all regions of the U.S., increasing 9.8% in the West, 7.1% in the Midwest, 6.7% in the South and 6.5% in the Northeast, NAR data show. Yun expected slower appreciation in home prices to boost sales over the next couple years.
"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," Yun said in the release. "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."
Pending-homes sales tend to be a leading indicator for previously owned homes, as houses typically go under contract a month or two before they're sold.
