A leading indicator of future home closings unexpectedly increased in September. Higher mortgage rates have weighed on sales of previously owned homes through much of 2023—but brighter days are ahead, according to one industry trade group.
Pending home sales, an index tracking contract signings for existing homes, increased slightly in September, the National Association of Realtors said Thursday. The index gained 1.1% from August’s reading. Economists had expected the index to decline to its lowest level since the report began in 2001, according to FactSet.
This gauge can be a litmus test for existing-home sales in coming months—with limitations. Homes are recorded as a pending sale when they go under contract, something that happens month or two before the closing date. A home sale only is reflected in the trade group’s more detailed existing-home sales report after it closes.
Because of this timeline, the pending home sales index can foreshadow coming changes in existing-home sales volume—though pending deals can always fall through.
Redfin
earlier this week said that home purchase agreements fell through at the highest rate since October 2022.
“Despite the slight gain, pending contracts remain at historically low levels due to the highest mortgage rates in 20 years,” Lawrence Yun, NAR chief economist, said in a statement. “Furthermore, inventory remains tight, which hinders sales but keeps home prices elevated.”
The market for previously owned homes has struggled this year as higher mortgage rates have kept both buyers and sellers in place. The trade group on Thursday said it expects home sales this year to total 4.15 million, the lowest annual count since 2008.
But the slump is nearing its end, the trade group’s forecast suggests. They expect the quarterly seasonally adjusted annual existing-home sales rate to bottom at 4.01 million in the fourth quarter of this year before gaining sequentially in 2024.
Sales next year are expected to increase to 4.71 million as mortgage rates drop to 6.3% by the fourth quarter of next year. The trade group expects the median existing-home price to eke a 0.1% annual gain in 2023, and a 0.7% increase in 2024.
“Because of homebuilders’ ability to create more inventory, new-home sales could be higher this year despite increasing mortgage rates,” Yun said. This underscores the importance of increased inventory in helping to get the overall housing market moving.” The Realtors group foresees sales of new single-family homes rising to 800,000 in 2024, up 13.5% from an expected 670,000 this year.
Indeed, new home sales have continued to capture demand from buyers as previously owned homes remain in relatively short supply. New home sales soared in September as buyers took advantage of builders’ offerings and incentives, government data suggest.
Write to Shaina Mishkin at [email protected]
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