P
ending home sales saw a slight increase in August as lower mortgage rates encouraged prospective buyers. However, high home prices remain a challenge, with many potential buyers waiting for even lower rates, surveys indicate. The National Association of REALTORS' Pending Home Sales Index rose 0.6% last month, but contract signings are still 3% lower than a year ago.

    Mortgage rates have dropped to 6.5%, improving housing affordability, according to NAR Chief Economist Lawrence Yun. Despite this, contract signings remain near cyclical lows as home prices continue to rise, reaching new record highs. The competitive market is reflected in the fact that 20% of homes sold above list price in August.

    Home builders are using price incentives to attract buyers and have increased entry-level inventory. New-home sales below $300,000 made up 18% of the sector's sales in August, up from 12% a year earlier. As mortgage rates have dropped to two-year lows, mortgage applications for home purchases have been increasing, up 2% in the latest week compared to the same time last year.

    Many prospective buyers are waiting for even lower rates, with about 40% of consumers expecting mortgage rates to decline over the next year. The Federal Reserve's recent move to lower its benchmark short-term rate has pushed long-term mortgage rates down, potentially saving borrowers hundreds of dollars per month on a typical $300,000 mortgage.

    Contract signings rose in the Midwest, South, and West while dropping in the Northeast last month. Despite this, existing-home sales prices in the Northeast were up nearly 8% year over year in August, reaching a median of $503,200. Yun notes that housing affordability will continue to see notable improvements as mortgage rates have fallen nationally.