US Pending Home Sales Surge to Highest Level Since Early 2023

The US housing market has shown signs of resilience, with pending home sales rising to their highest level since early 2023. According to the National Association of Realtors (NAR), the Pending Home Sales Index (PHSI) climbed 7.4% in September 2024, marking the strongest increase since June 2020. This surge in contract signings was driven by a combination of lower mortgage rates in late summer and more inventory choices available to buyers.

NAR Chief Economist Lawrence Yun attributed the increase in pending home sales to buyers taking advantage of the lower mortgage rates and the increased selection of homes on the market. "Contract signings rose across all regions of the country as buyers took advantage of the combination of lower mortgage rates in late summer and more inventory choices," Yun said in a statement. This indicates that buyers are more likely to enter the market when mortgage rates are lower, making homes more affordable.

The PHSI rose in all four regions of the US, with the West experiencing the most significant increase at 9.8%. The Midwest, South, and Northeast followed with increases of 7.1%, 6.7%, and 6.5% respectively. This regional breakdown further supports the notion that the combination of lower mortgage rates and increased inventory choices was a driving factor behind the surge in pending home sales.

The PHSI is a leading indicator of housing activity, as houses typically go under contract a month or two before they are sold. This means that the surge in pending home sales in September 2024 is likely to translate into increased existing-home sales in the following months, barring any unforeseen changes in the market.

The recent decline in mortgage rates has improved affordability for potential homebuyers. According to NAR Chief Economist Lawrence Yun, "Contract signings rose across all regions of the country as buyers took advantage of the combination of lower mortgage rates in late summer and more inventory choices." This indicates that buyers are more likely to enter the market when mortgage rates are lower, making homes more affordable. For instance, the weekly average interest rate on a 30-year mortgage fell to a two-year low of 6.08% in late September 2024, providing buyers with more purchasing power.

The expected impact of future changes in mortgage rates on the demand for existing homes is significant. When mortgage rates decrease, buyers have more purchasing power, which can lead to increased demand for existing homes. Conversely, when mortgage rates increase, buyers may be priced out of the market or become more cautious about purchasing a home. In April 2024, pending home sales fell 7.7% from the previous month, partly due to higher mortgage rates. This decline in demand indicates that buyers are more sensitive to changes in mortgage rates.

The current inventory levels and home prices are likely to react to changes in mortgage rates, affecting the overall housing market dynamics. As mortgage rates decrease, more buyers are encouraged to enter the market, leading to increased demand and potentially lower inventory levels. Conversely, when mortgage rates rise, demand decreases, and inventory levels may increase. Home prices may also be affected by changes in mortgage rates, with lower rates potentially driving up home prices due to increased competition. The interplay between mortgage rates, inventory levels, and home prices will shape the overall housing market dynamics.

In conclusion, the US housing market has shown signs of resilience, with pending home sales rising to their highest level since early 2023. The combination of lower mortgage rates and increased inventory choices has driven the surge in pending home sales, with all four regions of the US experiencing month-over-month gains in transactions. The recent decline in mortgage rates has improved affordability for potential homebuyers, and future changes in mortgage rates are expected to have a significant impact on the demand for existing homes. The current inventory levels and home prices are likely to react to changes in mortgage rates, affecting the overall housing market dynamics.