A key indicator of future U.S. home sales has declined for the first time in nearly three months, a surprising development given that mortgage rates have fallen for nine consecutive weeks. The data suggests that lower borrowing costs alone have not been enough to stimulate significant buyer activity in a market facing multiple headwinds.
Key Takeaways
- Pending home sales, a measure of signed contracts, fell approximately 1% in the four weeks ending September 21 compared to the previous year.
- The decline occurred even as the average 30-year fixed mortgage rate reached an 11-month low of 6.26%.
- Data shows existing home sales also dipped by 0.2% in August from the prior month, indicating a stagnant market.
- Factors including high home prices, limited housing supply, and broad economic uncertainty are reportedly discouraging potential buyers.
Market Shows Signs of Stagnation
Recent figures point to a housing market that is struggling to gain momentum. According to a report from real estate brokerage Redfin, pending home sales experienced a year-over-year drop of about 1% for the four-week period ending September 21. This marks the first such decline in nearly three months and counters expectations of a market rebound.
This downturn in contract signings is particularly noteworthy because it coincides with a sustained period of decreasing mortgage rates. Over nine straight weeks, the average rate for a 30-year fixed mortgage has dropped, hitting 6.26%—its lowest point in 11 months and a significant decrease from the 6.8% seen at the beginning of summer.
Understanding Pending Home Sales
Pending home sales track the number of homes where a contract has been signed but the sale has not yet closed. It is considered a forward-looking indicator, often providing insight into the direction of existing-home sales in the coming one to two months.
Separate data from the National Association of Realtors (NAR) supports the observation of a sluggish market. Sales of existing homes saw a slight month-over-month decrease of 0.2% in August. While sales were up 1.8% compared to the same time last year, the recent trend suggests that buyer activity remains flat.
Refinancing Booms While Purchases Lag
While lower interest rates have not spurred a wave of new home purchases, they have ignited another segment of the mortgage market. Redfin's analysis highlighted a significant surge in refinancing activity.
In the second week of September, mortgage applications to refinance existing home loans jumped by a remarkable 58% compared to the previous week. This indicates that current homeowners are taking advantage of the lower rates to reduce their monthly payments.
A Tale of Two Applications
- Refinance Applications: Up 58% week-over-week.
- Purchase Applications: Up only 3% week-over-week.
This large gap shows that while lower rates are attractive to existing homeowners, they are not yet a strong enough incentive for new buyers to enter the market.
In contrast, applications for mortgages to purchase a home increased by a modest 3% during the same period. The weak growth in purchase applications has tempered hopes that cheaper borrowing costs would quickly energize the housing market.
Four Factors Holding Back Housing Demand
Analysts at Redfin have identified four primary reasons why lower mortgage rates are failing to translate into higher home sales.
Persistent High Prices and Limited Supply
Despite softer demand, home prices remain elevated in many parts of the country. This affordability challenge is compounded by a muted supply of new listings, leaving potential buyers with limited and often expensive options.
Buyer Hesitation and Economic Worries
Many would-be buyers are reportedly waiting for mortgage rates to fall even further, with some holding out for rates to dip below the 6% threshold. However, this window of opportunity may be closing, as recent economic data has caused rates to tick upward again. According to Mortgage News Daily, top-tier 30-year fixed rates were back in the high 6.3% range as of last Friday.
Broader economic uncertainty is also playing a significant role. Concerns about job security, stock market volatility, and the possibility of a recession are causing many potential buyers to pause their search. Josh Felder, a Redfin Premier agent in San Francisco, commented on this trend.
“A lot of buyers are hesitating because they’re worried about potentially losing their jobs, losing money in their stock portfolio, and the economy in general,” Felder stated. He added that buyers who are active in the market are proceeding with caution. “Many of the buyers who are moving forward are making offers with contingencies, and are willing to walk away during the inspection period if they don’t get the concessions they want.”
Outlook Remains Cautious
The recent rebound in Treasury yields, driven by stronger-than-expected economic reports, has led to a slight increase in borrowing costs. This development reduces the likelihood of aggressive rate cuts from the Federal Reserve, suggesting that mortgage rates may not fall significantly further in the near term.
The combination of persistent affordability issues, low inventory, and widespread economic anxiety continues to weigh on the U.S. housing market. While the surge in refinancing shows that consumers are responsive to lower rates, the data on new purchases indicates that a more substantial recovery in home sales will require improvements in consumer confidence and market conditions.
