Jamie Spencer
September saw a surprising jump in signed contracts to buy existing homes, rising 7.4% compared to August, according to the National Association of Realtors (NAR). This gain, which far exceeded analysts’ expectations of a 1% increase, represents the highest level of pending sales since March and signals continued buyer interest despite fluctuating mortgage rates. However, with mortgage rates once again on the rise, experts caution that the surge may be temporary.
September’s Spike in Buyer Demand
Pending home sales, based on signed contracts, provide an immediate indicator of buyer demand. In September, pending sales were also up 2.6% year-over-year, driven by a decrease in mortgage rates during August and early September. The average rate on a 30-year fixed mortgage fell to 6.11% on September 11, the lowest in recent months, before climbing back to over 7% in October. This temporary dip in rates allowed buyers to lock in more favorable terms, boosting home sales.
Lawrence Yun, chief economist at NAR, noted that “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.” Yun expects further gains if economic conditions remain stable and mortgage rates level off, with additional support from job growth and inventory increases.
Regional Variations in Pending Sales
Regionally, the Northeast and West saw the largest year-over-year increases in pending home sales, while the Midwest and South remained flat. The West, where home prices are the highest, experienced the biggest gains as buyers were especially responsive to the slight dip in mortgage rates, which improved affordability in this high-cost region.
Even with September’s momentum, the broader market faces challenges. Mortgage demand from homebuyers was up 10% last week compared to the same time last year, but demand remains historically low overall, and sales have not returned to pre-pandemic levels.
Rising Rates Threaten Affordability and Future Sales
With mortgage rates returning to 7%, housing affordability has taken another hit, potentially stifling buyer activity in the months ahead. Selma Hepp, chief economist at CoreLogic, warned that the current rebound in pending home sales “is likely short-lived” given the rate hikes, making it unlikely that 2024 home sales will surpass those in 2023. Higher mortgage rates could push potential buyers out of the market, as affordability challenges continue to strain budgets.
For buyers still looking to enter the market, the hope is that mortgage rates will stabilize. While September’s strong showing demonstrates resilient demand, sustaining this growth will depend heavily on economic conditions and rate trends.
The unexpected rise in pending home sales in September underscores the sensitivity of buyer demand to mortgage rates. While the temporary drop in rates fueled a surge in signed contracts, the return to higher rates in October has renewed affordability concerns, raising questions about the strength of the housing market in 2024. As the market continues to face fluctuations, buyers and sellers alike will be closely watching for stability in mortgage rates and economic growth to drive sustained momentum.
