US pending home sales ticked up in July by 0.9%, rising for the second month in a row despite elevated prices and rising mortgage rates, according to a report released Wednesday by the National Association of Realtors.
The stronger-than-expected showing for pending home sales defied a market expectation that they would drop from June.
However, year-over-year pending transactions fell by 14%.
“The small gain in contract signings shows the potential for further increases in light of the fact that many people have lost out on multiple home buying offers,” said Lawrence Yun, NAR’s chief economist.
Rates are rising because the economy is doing well.
“Jobs are being added, thereby enlarging the pool of prospective home buyers,” Yun said. “However, rising mortgage rates and limited inventory have temporarily hindered the possibility of buying for many.”
There was regional variation in pending home sales according to the index. Pending home sales dropped in the Northeast, down 5.8% from June; and in the Midwest, down 0.4%.
Pending sales rose in the South, up 2% from June; and the West, which was up 6.2% from June.
“The West region experienced a meaningful price decline in the past year and buyers are quickly returning, as a result,” Yun added.
Pending home sales or contract signings tend to lead existing home sales by roughly one to two months. An uptick in signed contracts for existing homes is in line with the July trend for new home sales, said Danielle Hale, chief economist for Realtor.com.
“But, unlike the market for new homes, which has recovered convincingly above last year’s lows, pending home sales continue to lag behind year-ago levels,” Hale said. “This means more of the same is ahead for existing home sales, which have bounced back only modestly.”
Stubbornly low housing inventory is hampering sales nationwide. Few homeowners with ultra-low mortgage rates of 3% or 4% are willing to sell their home and buy another one at 7%. This is providing an opportunity for new construction homes, which are supplementing inventory.
“While builders are capturing a greater share of home sales, a lack of affordability resulting from high home prices and mortgage rates has dampened homebuyer demand,” said Hale.
Buyers are proving to be very rate sensitive. When rates climbed over 7%, applications for a mortgage dropped to a 28-year low, according to the Mortgage Bankers Association.
“Today’s data suggests that home sales activity is unlikely to see a strong pick up in the next few months as limited options and significant affordability headwinds weigh on buyers,” Hale said.
One small bright spot is that rents are easing up, said Hale.
“Recent rental trends, which spell relief for renters who have faced several years of soaring prices, could further diminish housing demand,” said Hale.
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