Late-summer jump in homebuying activity bucks expectations 

Pending home sales showed surprising strength last month in what could be a sign that the housing market has taken a small step in the right direction.

New contracts were up 4% in August compared to July and up 3.8% year-over-year, according to the National Association of Realtors. This beat the expectations of many forecasters, who widely expected flat sales numbers as the summer wound to an end.

This latest data indicates that buyers are re-engaging — but caution remains, according to Odeta Kushi, deputy chief economist at First American. "Improvements in mortgage rates, affordability, and inventory are helping, but not yet driving a full recovery in housing demand," Kushi said.

If mortgage rates continue to decline, the drop would boost not only home sales, but refinancing — and that would be "a positive for near-term consumer spending," according to Ryan Sweet, chief U.S. economist at Oxford Economics.

"Housing will find its footing and begin to improve more noticeably as the 30-year fixed mortgage rate closes in on 6%," Sweet said.

Possible impact of a government shutdown: But mortgage rate volatility may begin this week if the federal government shuts down on Oct. 1.

While government shutdowns typically result in lower mortgage rates, this particular shutdown could stall a key jobs report slated for release on Oct. 3 — and that delay would leave investors with less information about what is happening within the economy.

A drop in inventory won't help: While lower mortgage rates may entice some market activity, inventory could become real estate's next hurdle as more sellers pull their home listings.

"The uptick in delisting activity reflects the transitioning housing market, as would-be sellers take their home off the market when they are not getting offers at the price they had hoped for," said Lisa Sturtevant, chief economist at Bright MLS.

Locked-in impact: All of these changes are occurring as the lock-in effect widely attributed to pandemic-era mortgage rates loses impact. The share of U.S. homeowners with mortgage rates of 6% or higher rose to 19.7% in the spring — a 10-year high, according to Redfin data. 

Meanwhile, the share of those who have rates below 6% has dropped from 92.7% in the second quarter of 2022. Redfin's Sept. 29 report found that 52.5% of homeowners still have rates below 4%, down from 65.1% three years ago.

For now, mortgage rates "have not gone down significantly enough to move the needle," according to Mariah O'Keefe, a Redfin Premier agent in Seattle who said buyers "need to see a bigger difference in their potential monthly payment before things are going to change."

"If rates tick down below 6%, that will bring a lot of people back into the market," O'Keefe added.