Pending home sales rise slightly but continue to muddle along

After hitting the second-lowest level on record in July, pending home sales rose slightly in August, according to data released Thursday by the National Association of Realtors (NAR). 

The Pending Home Sales Index rose 0.6% month over month in August to a reading of 70.6. A reading of 100 is equal to the level of contract activity in 2001. Despite the monthly increase, last month’s reading was still down 3% year over year.

NAR chief economist Lawrence Yun attributed the modest uptick in contract signings to improved housing affordability due to lower mortgage rates.

“The Federal Reserve does not directly control mortgage rates, but the anticipation of more short-term interest rate cuts has pushed long-term mortgage rates down to near 6% in late September,“ Yun said in a statement.

“On a typical $300,000 mortgage, that translates to approximately $300 per month in mortgage payment savings compared to a few months ago. … However, contract signings remain near cyclical lows even as home prices keep marching to new record highs.”

On a regional basis, contract signings rose in the Midwest (up 3.2% to a reading of 70.0), the South (up 0.1% to a reading of 83.6) and the West (up 3.2% to a reading of 58.0). They fell in the Northeast by 4.6% to an index reading of 61.6.

On an annualized basis, pending home sales fell in the Northeast (-2.2%), Midwest (-3.6%) and South (-5.3%) but rose in the West (+2.7%)

“In terms of home sales and prices, the New England region has performed relatively better than other regions in recent months,” Yun said. “Contract signings rose in both the most affordable and most expensive regions — the Midwest and West, respectively — because mortgage rates have fallen nationally. Housing affordability will continue to see notable improvements.”

While contract signings may be near record-low levels, economists are still optimistic.

“Purchase mortgage applications — another leading indicator of home sales — are trending up in September, as mortgage rates moved lower, suggesting that the once frozen housing market may be starting to thaw,” Odeta Kushi, deputy chief economist at First American, said in a statement.