According to the National Association of Realtors, signed contracts to purchase existing homes rose a surprising 7.4% in September compared to August. Analysts had expected a gain of about 1%.
These so-called 'open sales' were at the highest level since March and 2.6% higher than September last year.
Because pending sales are based on signed contracts, which represent the people shopping during the month, this is the most up-to-date indicator of buyer demand. It also shows how sensitive today's buyers are to mortgage rates.
The average rate on the 30-year mortgage fell throughout August, reaching its most recent low of 6.11% on September 11, according to Mortgage News Daily. It stayed around that level for the rest of the month before shooting higher in October. Now it is just over 7%.
“Contracts rose in all regions of the country as buyers took advantage of the combination of lower mortgage rates in late summer and more inventory choices,” said Lawrence Yun, chief economist for the Realtors, in a news release. “More gains are expected as the economy continues to add jobs, inventory levels continue to grow and mortgage rates remain stable.”
Regional ongoing sales were higher year over year in the Northeast and West and flat in the Midwest and South. Overall, gains were greatest in the West, where home prices are highest and buyers would benefit most from even a small drop in interest rates.
Now that rates are higher, affordability is taking another hit. However, according to the Mortgage Bankers Association, demand for mortgages from homebuyers still rose last week and was 10% higher than the same week a year ago. Demand for mortgages is still historically low, and while sales are up, so is demand.
“With interest rates pushing back toward 7%, the recovery in activity ahead is likely to be short-lived and unlikely to be enough to lift home sales above 2023 levels in 2024,” said Selma Hepp, chief economist at CoreLogic.
