The number of pending home sales in the United States increased last month as a decline in interest rates encouraged buyers to sign contracts, according to real estate brokerage Redfin.
The pending home sales index measures the number of home sales contracts that have been signed but have yet to close. The closing process typically takes up to two months. Investors use the index to gauge the nation’s economic status and predict the direction of the housing market.
For September, pending sales rose 2.5 percent from August, the biggest monthly jump since January 2023.
Elijah de la Campa, senior economist at Redfin, called the September data an indication that buyers and sellers are willing to enter the housing market, provided the “conditions are right.”
“Most buyers who went under contract last month did so when mortgage rates were falling and before two major hurricanes devastated much of the South. We’re closely watching October data to see whether the recent increase in rates and widespread devastation from the storms causes the market to slow back down,” he said in a statement.
Redfin pointed out that many prospective buyers entered the market expecting the Federal Reserve’s recent rate cut to result in a drop in mortgage rates. However, rates rose because the market had already priced in this decision.
While the Fed is expected to reduce rates by an additional 25 points next month, the Redfin report predicts that this move will not significantly impact mortgage rates.
De la Campa advised buyers not to attempt to time the market.
“There are a lot of swing factors, like the upcoming jobs report and the presidential election, that could cause the housing market to take unexpected twists and turns,” he said.
Mortgage Rates and Affordability
According to Zillow’s September 2024 market report, the decline in mortgage rates presents an attractive opportunity for buyers.“For a buyer who could have afforded the mortgage payment on a typical home in May, mortgage rates falling to a two-year low of 6.08 percent in late September meant a boost of more than $40,000 in buying power over the past four months,” the report reads.
“That helps more buyers clear the affordability hurdle, and means buyers already in the market are able to access more homes.”
The return of sellers lifted inventories and eased competitive pressure, Zillow stated. Out of the 50 biggest metros in the United States, 10 are now considered buyers’ markets, all of which are in Texas, Florida, Tennessee, Georgia, and Louisiana, according to the report.
The decline in interest rates has proven to be a boon for many borrowers who took mortgages at high rates. “As interest rates eased down to 6.5 percent, about 2.5 million borrowers could already refinance and save at least 75 basis points (0.75 percent) on their interest rate,” the report reads.
“A reduction in rate from 7.25 percent to 6.5 percent would result in a $200 monthly savings on a $400,000 loan with a similar term. If interest rates fall to 5.5 percent, more than 7 million borrowers can potentially refinance, and over 5 million of these refi candidates got their mortgages in the past three years.”
