A dip in mortgage rates gave a late summer spark to the housing market
Pending home sales in the US rose 4.0% in August from July and 3.8% from a year ago, according to a report released Monday by the National Association of Realtors (NAR).
The report showed increased contract signings in the Midwest, South, and West, while the Northeast trailed.
Lawrence Yun, NAR chief economist, noted that the dip in rates in August led to a surge in activity.
“Lower mortgage rates are enabling more homebuyers to go under contract,” Yun said. "In the Midwest, low mortgage rates combined with high levels of affordability are attracting more buyers compared to other regions.”
Odeta Kushi, First American deputy chief economist, said that the Midwest’s relative affordability, paired with lower rates, “helps make the payment-to-paycheck calculation work for many buyers.”
Buyer confidence increasing
Pending sales in the Midwest jumped 8.7% from July and 6.7% year-over-year. The South and West also posted monthly gains of 3.1% and 5.0%, respectively. The Northeast, however, saw a 1.1% dip from July, though it still managed a 2.6% increase over last year.
The August Realtors Confidence Index revealed shifting sentiment among industry professionals, with 19% of NAR members expecting an increase in buyer traffic over the next three months, up from 16% in July.
Expectations for seller traffic, however, slipped to 19% from 21% the previous month. Kushi noted that while there are some positive signs, caution remains in the market.
“As a forward-looking indicator based on contract signings, August’s pending home sales data suggests that while buyers are re-engaging, caution remains," Kushi said. 'Improvements in mortgage rates, affordability, and inventory are helping, but not yet driving a full recovery in housing demand."
Kushi said that while the numbers showed market conditions improved for buyers, there are still affordability challenges that must be overcome.
“Purchase mortgage application data from September indicate indicates additional momentum, with buyers responding to lower rates," Kushi said. "This suggests that the modest improvement in pending sales may continue into the fall, especially if affordability conditions stabilize. Affordability challenges and structural inventory shortages continue to weigh on buyer activity. Lower rates help, but they are not a panacea for the housing market.”
Fannie Mae’s Economic and Strategic Research Group predicted that 30-year mortgage rates will fall to 6.4% by the end of 2025 and drop further to 5.9% by late 2026.
However, after weeks of falling, US mortgage rates ticked up for the first time since July.
Freddie Mac reported the average 30-year fixed rate rose to 6.3% for the week ending September 25, up from 6.26% the previous week. The 15-year rate also climbed to 5.49% from 5.41%.
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