Pending home sales continue to lag, but growing inventory and pent-up buyer demand may not stay bottled up for much longer, economists say.
Pending home sales—a forward-looking indicator based on contract signings—fell 0.8% in June and are down 2.8% compared to a year ago, the National Association of REALTORS® reported Wednesday.
“The data shows a continuation of small declines in contract signings despite inventory in the market increasing,” says Lawrence Yun, NAR’s chief economist.
Indeed, buyers are getting more options than they’ve had in years—housing inventories were up 16% annually in June. But so far, that hasn’t been enough enticement for buyers to rush under contract for a home.
What Could Turn Sales Around
The REALTORS® Confidence Index report—based on responses from more than 1,500 real estate professionals about their most recent transactions—shows real estate professionals are optimistic that home buying and selling activity will increase. “That confidence is supported by the fact that mortgage applications have been rising,” Yun says.
Over recent weeks, mortgage applications for home purchases—a gauge for future buying activity—have consistently been 20% or more above the level of one year ago, according to the Mortgage Bankers Association’s seasonally adjusted index.
“These are serious, potential buyers,” Yun said at the July 16 Real Estate Forecast Summit. “It shows a desire to enter the market has turned positive.”
The 30-year fixed-rate mortgage mostly held flat last week, offering a silver lining for home buyers: Predictability.
“While it’s hard to see the positive in flat mortgage interest rates for 27 weeks, at the very least, home buyers can plan, shop and buy without surprises,” says Jessica Lautz, deputy chief economist at the National Association of REALTORS®. “Home buyers can forget the FOMO of not locking in the lowest rates possible, as rates are steady.” (Note: Freddie Mac will report this week’s national average today.)
“Buyers have been pushed to the sidelines for two and a half years, waiting for a reprieve in affordability,” Lautz says.
Pent-up buyer demand is also fueled by job growth and rising wages, Yun noted at the summit. Since COVID, the U.S. economy has added 7 million jobs, yet home sales remain at 30-year lows. “There is huge potential demand for the housing market,” Yun said at the summit. “Once mortgage rates go down to make it more affordable to get into the market, [sales] can quickly change.” (Read more: What Mortgage Rate Will Get Buyers Moving?)
As home buyers debate when to jump in, current homeowners remain the housing market’s clear winners. Even as sales have slowed, the median existing-home price is rising, and homeowners have seen record-high equity gains. In June, prices climbed 2% compared to a year ago, reaching $435,300—the highest ever recorded for the month of June, NAR’s data shows.
Over the last five years, the average homeowner’s wealth has increased by $140,900, Yun says.
With Sales, National Averages Don’t Tell the Whole Story
Real estate is all about location—and that’s grown even clearer in the latest housing data. While contract signings dropped nationwide in June, one region bucked the trend.
“Pending sales in the Northeast edged up, despite the region seeing the strongest home price growth in the country,” says Yun.
The Northeast was the only major U.S. region to see an increase in contract signings last month, rising 2.1% in June compared to May. That growth coincided with a 4.2% year-over-year jump in median prices last month, reaching $543,300.
Elsewhere, contract signings fell in June, down 3.9% in the West, 0.8% in the Midwest and by 0.7% in the South, according to NAR’s Pending Home Sales Index.
