US Pending Home Sales Remain at 22-Year Low Despite Rate Drop

Contract signings for existing US homes held steady in November compared to the previous month, despite a decrease in mortgage rates from 23-year highs. The National Association of Realtors (NAR) reported that the index for pending home sales remained at 71.6, the lowest reading since its inception in 2001, signifying a lack of momentum.

The static index figures suggest a cautious approach by potential buyers despite the slight dip in mortgage rates, possibly influenced by both seasonal trends and reluctance due to ongoing high home prices. Lawrence Yun, NAR chief economist, anticipates improved home sales in 2024 with the continuous decline in mortgage rates leading to increased affordability, potentially boosting demand.

While the recent drop in mortgage rates indicated a slight uptick in homebuyer affordability, Keith Gumbinger from HSH.com highlighted that lower rates alone cannot alleviate the primary issues in the housing market, such as limited housing inventory, which continues to constrain sales activity. Pending home sales varied across regions, with some increases in the West and Midwest but declines in the South and Northeast, contributing to a mixed landscape.

Despite a temporary rise in the number of newly listed homes and active inventory, the housing market remains challenged by a considerable gap in inventory compared to prior years. Realtor.com economists predict rates exceeding 6.5% in 2024, potentially initiating an effect where homeowners with lower rates hold onto their properties, further constricting inventory.

The forecast indicates a complex scenario ahead: increased transactions driven by pent-up demand may lead to rising home prices, potentially mitigating the advantages of reduced mortgage rates for buyers in the coming year.