Pending Home Sales Fall to Lowest Level Since 2001 as Mortgage Rates Bite
Pending home sales dropped 7.3% in September from August and 11.3% year-over-year, the lowest reading since the series began in 2001, as mortgage rates surged toward 7.6% and builders grew more cautious.
Signed contracts on existing homes fell to the lowest level in more than two decades in September, as sharply rising mortgage rates pushed buyers to the sidelines and deepened a slowdown that is spreading across the U.S. housing market. Pending home sales dropped 7.3% from August and were down 11.3% from a year earlier, according to data released Tuesday by the National Association of Realtors. It was the weakest nationwide reading since the trade group began tracking the series in 2001.
The decline was driven by what Lawrence Yun, the association's chief economist, called «fast-rising» mortgage rates. The average 30-year fixed-rate mortgage has been climbing since late February, but the move accelerated in September, jumping from about 6.9% to as high as 7.6%, according to Mortgage News Daily. Yun said job growth and income gains can support home purchases, but affordability is more sensitive to changes in borrowing costs. «Although job growth and income gains can support home purchases, housing affordability is more affected by changes in mortgage rates,» he said in a statement.
The pullback was steepest in the West and South, regions that had been among the hottest markets during the pandemic-era housing boom. Even stronger markets such as Nashville and San Francisco recorded declines in signed contract activity, suggesting the chill is broad rather than confined to previously overheated areas. The pending sales report is the latest confirmation that the housing market is cooling after a period of rapid price growth and intense competition for limited inventory.
A separate report pointed to weakness on the supply side of the market. Housing starts, a measure of new residential construction, fell 5.2% in September from August and were down 7.4% from a year earlier, according to the U.S. Census Bureau. The drop in building activity comes as buyers grapple with affordability concerns, which can quickly translate into softer demand for new homes and cause builders to slow production.
Sentiment among homebuilders has also soured. A monthly gauge from the National Association of Home Builders fell to its lowest level in 14 years, according to a report released Monday. Bill Owens, chairman of the Washington, D.C.-based trade group, said builders are facing many of the same pressures as buyers, including rising mortgage rates, higher gas prices and broader inflation. Builders must also contend with higher costs for construction loans and building materials, as well as immigration enforcement activity in their markets that could cause construction delays.
Robert Dietz, the builders association's chief economist, said the combination of supply-side constraints and affordability challenges is making builders cautious. «Demand persists, but higher mortgage rates, elevated construction costs and weaker consumer confidence are keeping more buyers on the sidelines,» he said. The result is a market in which would-be buyers remain interested but are increasingly unable or unwilling to commit, while builders pull back on new projects until the cost picture becomes clearer.
There may be some reason for optimism on mortgage rates. Yun noted that rates have already risen more than the Federal Reserve's short-term interest rate hikes, which could mean they are nearing a peak. But he cautioned that other risks remain, including «increasing energy prices and the resulting inflationary pressure,» which he described as highly uncertain. For now, the data points to a housing market that is contracting on both sides, with fewer signed contracts, fewer new homes under construction and builders bracing for a slower stretch ahead.
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