Pending home sales up for a second month but still sluggish
Pending sales in July rose a modest 0.9%, but that could reflect an extended homebuying season as inventory has stifled buying activity.
- July pending sales were still down 14% compared to a year ago.
- Falling rent prices may ease purchase demand, especially if mortgage rates remain elevated.
- The West saw a significant bump in pending sales, while the previously resilient Midwest and Northeast saw sales fall.
More homebuyers signed purchase contracts between June and July, but the increase was modest — and well below numbers from a year ago.
The National Association of Realtors reported that pending sales of existing homes were up 0.9% from June to July as homebuyers locked in mortgage rates that were on the rise. It's the second consecutive month of gains following declines throughout the spring.
Even with the monthly bump in activity, pending home sales were down 14% year-over-year.
The increase mirrored the trend of rising new home sales — the one silver lining in an otherwise sluggish summer market. But low inventory in both the new- and existing-home markets is one of several factors hampering a more meaningful recovery, said Realtor.com Chief Economist Danielle Hale.
Still, recent rental trends could signal a shift, Hale said. Realtor.com's latest rental report showed year-over-year rent prices falling for the third month in a row in July, spelling relief for renters after years of big increases, which may ease homebuying demand.
In a turnaround from June, the Midwest posted a monthly decline in pending home sales. The previous month, the region posted the largest gains.
The Northeast also struggled, with pending home sales falling nearly 6% month-over-month. Regions that previously saw declines — the South and the West — both made gains in July, according to the report, with the West showing the biggest improvement at 6.2%.
Housing markets in the Northeast and Midwest had proven to be resilient over the past year, but elevated mortgage rates and affordability challenges are taking a toll, said Lisa Sturtevant, chief economist for Bright MLS.
Sturtevant also noted that pending sales typically decline between June and July, but this year buyers had to lengthen their home search because there were so few properties for sale.
That could mean further increases later this year, because many people have lost out on multiple offers and are still in the market, said NAR Chief Economist Lawrence Yun.
"Jobs are being added and, thereby, enlarging the pool of prospective home buyers. However, rising mortgage rates and limited inventory have temporarily hindered the possibility of buying for many," Yun said.
Pending home sales usually lead existing home sales by 1-2 months, but that doesn't mean a wave of sales is coming this fall.
"Today's data signal that while home sales activity may pick up modestly, limited options and significant affordability headwinds will continue to weigh on buyers and hamper more meaningful existing home sales gains," Hale said.