Pending Home Sales Plunge to All-Time Low in Troubling Sign for Fall Housing Market

Pending home sales slipped in September to the lowest level on record, as mortgage rates surging past 7% eroded prospective buyers' purchasing power.

Contract signings fell 7.3% compared to August, and plunged 11.3% year over year, according to the National Association of Realtors® Pending Home Sales report released on Tuesday.

"Market conditions weakened in September due to fast-rising mortgage rates," says NAR Chief Economist Lawrence Yun. "Although job growth and income gains can support home purchases, housing affordability is more affected by changes in mortgage rates."

Pending sales were down both month over month and year over year in all four U.S. regions. The West saw the largest monthly decline with a 9.2% drop, followed by the South (-8.2%), Midwest (-6.5%), and Northeast (-4.2%).

On an annual basis, the West was again in the lead with a 15% decrease, followed by the South (-12%), Northeast (-9.4%), and Midwest (-8.7%).

At the metro level, pending sales declined annually even in the hitherto strongest markets. The smallest decreases were recorded in Nashville, TN (-2% year over year), Hartford, CT (-2.1%), and San Francisco (-3.5%).

"The local data confirms that higher rates are impacting buyers throughout the country, even in markets that have shown consistent strength," says Realtor.com® senior economist Hannah Jones.

The fall season typically favors buyers, and this year was no exception, with home asking prices falling for an 11th straight month in September, price reductions edging up higher, and inventory climbing.

But with rates reaching their highest level in nearly three years, many buyers were reluctant to take advantage of the more favorable market conditions.

What this means for buyers and sellers

Jones expects mortgage rates to stay elevated after recent inflation data remained hot, with both headline and core inflation picking up.

"As a result, markets are pricing in the possibility of another Fed rate hike before the end of the year," says Jones. "Against that backdrop, buyers will likely keep facing tough affordability conditions through year-end, especially as wage growth runs below inflation and further erodes real buying power."

Yun, however, sees a silver lining desipte the drop in sales volume.

"Despite the difficulty of obtaining a mortgage, the limited number of distressed properties is ensuring steady home prices," he notes. "Buyers and sellers may simply be holding back until mortgage rates move favorably."

Metros with the smallest pending sales declines in September

1. Nashville, TN (-2.0%)
2. Hartford, CT (-2.1%)
3. San Francisco, CA (-3.5%)
4. San Jose, CA (-4.6%)
5. Buffalo, NY (-5.6%)
6. Richmond, VA (-5.8%)
7. Austin, TX (-5.9%)
8. Pittsburgh, PA (-6.2%)
9. Memphis, TN (-6.3%)
10. San Antonio, TX (-7.1%)

Pending home sales, or contract signings between buyers and sellers, mark the first formal step in the homebuying process and typically lead closings by one to two months, making them a useful gauge of near-term activity.

The August pickup in contract signings carried through the pipeline, with existing-home sales rising month over month in September but remaining softer year over year.

Months' supply held near a 10-year high, as ample inventory in well-supplied markets met tepid buyer demand.

Even as rates strain budgets, the market is becoming more hospitable for those who can afford to participate. The latest Realtor.com Market Clock puts the national market at 4 o’clock—a late balanced market leaning toward buyers.

"Lower prices, a slower pace, and more price reductions may help offset some of the impact of higher rates," concludes Jones.