Pending Home Sales Surge in September as Mortgage Rates Drop, But Will It Last?
Pending home sales made a surprising leap in September, with signed contracts to buy existing homes jumping 7.4% compared to August, according to the National Association of Realtors (NAR). This surge marks the highest level since March, reflecting a 2.6% increase from September of last year. While the market saw renewed buyer activity, recent fluctuations in mortgage rates could impact future sales trends.
A Surge Fueled by Lower Mortgage Rates
September’s increase in pending sales coincided with a drop in mortgage rates. The average rate on a 30-year fixed mortgage gradually fell throughout August, hitting a low of 6.11% on September 11. This drop provided a temporary boost for buyers, particularly in regions where high home prices amplify the impact of even small interest rate changes. Rates remained steady for much of September, allowing buyers to lock in lower rates, but have since climbed back up, reaching just over 7% in October.
This shift underscores just how sensitive the current housing market is to mortgage rates. NAR’s Chief Economist Lawrence Yun explained, “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 also noted that further gains may depend on the stability of mortgage rates, inventory growth, and continued job creation.
Regional Breakdown: Who Benefited Most?
Regionally, pending sales showed year-over-year increases in the Northeast and West, while remaining flat in the Midwest and South. Gains were most significant in the West, where home prices tend to be the highest, and buyers stood to benefit most from lower rates. With prices high, even small rate reductions can make a significant difference in affordability, sparking increased buyer activity.
Can the Market Momentum Continue?
Although the September surge in pending sales points to a potential rebound, it may be short-lived. As mortgage rates climbed back to 7% in October, affordability pressures are returning. CoreLogic’s Chief Economist, Selma Hepp, cautions that the recent uptick in pending sales may not be enough to keep 2024 home sales above 2023 levels.
Despite affordability challenges, buyer interest has remained steady. Mortgage demand from homebuyers was up 10% compared to the same week last year, as reported by the Mortgage Bankers Association. However, it’s worth noting that overall demand and sales levels remain historically low.
Looking Forward
The September increase in pending home sales reflects the delicate balance of mortgage rates and buyer demand. While the temporary drop in rates brought buyers back into the market, the recent increase could dampen this trend. As the housing market heads into 2024, all eyes will be on mortgage rates and inventory levels, which will play a key role in determining whether buyer momentum can continue.
