Contracts to buy existing homes fell 7.3% in September from August and 11.3% from a year earlier, the National Association of Realtors reported on October 20, leaving its Pending Home Sales Index at 66.0 — the lowest level since the series began in 2001. Economists surveyed by Reuters had expected a decline of only 0.5%.
Because a pending sale is a signed contract that usually closes within one or two months, the index is the housing market’s nearest-term leading indicator, and the slump puts October and November closings under pressure, analysts said.
Every region fell
Month-over-month pending sales declined in all four major regions. The West had the largest decrease at 9.2%, followed by the South at 8.2%, the Midwest at 6.5% and the Northeast at 4.2%. Year over year, the West fell 15.0%, the South 12.0%, the Northeast 9.4% and the Midwest 8.7%.
Even the strongest large markets fell from a year earlier, according to Realtor.com Economics data published with the release. The smallest annual declines were in Nashville at 2.0%, Hartford at 2.1%, San Francisco at 3.5%, San Jose at 4.6% and Buffalo at 5.6%.
Rates blamed for the freeze
NAR chief economist Lawrence Yun blamed borrowing costs directly. “Market conditions weakened in September due to fast-rising mortgage rates,” Yun said in the release. The 30-year fixed rate averaged 7.40% in the week ended October 15, according to Freddie Mac.
Homebuilding has also slowed: housing starts ran at a seasonally adjusted annual rate of 1,221,000 in September, 5.2% below August and 7.4% below a year earlier, while builder confidence hit a 14-year low. Yet prices have not fallen in step — nationally aggregated prices were still up about 1.0% year over year, according to ResiClub analysis of Zillow data — leaving buyers squeezed between high rates and sticky prices.
The contract slump is already showing up in cancellations. Redfin’s September report, published October 12, showed pending sales down 4% month over month, with 14.5% of contracts cancelled, according to reports on the data. NAR’s index covers roughly 40% of multiple listing service data each month and is benchmarked so that 100 equals the average contract activity of 2001 — so a reading of 66.0 means signings are running about a third below that baseline. With closings typically following contracts by one to two months, the soft pipeline points to a quiet end to the year for existing-home sales.
