L
ast month saw a significant drop in contract signings for homes, reaching a new low according to the National Association of REALTORS®'s Pending Home Sales Index, which is a forward-looking indicator of home sales based on contract signings. This decrease was a whopping 5.5% in July and was down a staggering 8.5% compared to the same time last year.
Despite job growth and increased inventory, affordability issues continued to hinder a sales recovery during midsummer. Some potential home buyers may also be waiting for mortgage rates to decrease. Federal Reserve Chairman Jerome Powell announced a signal to the market that an interest rate cut is likely at their next meeting in mid-September. Although the Fed's rate does not directly impact mortgage rates, it can influence them.
Some home buyers may choose to wait until fall to see if a potential rate drop could improve housing affordability. Nirvan Ghosh, portfolio manager at The Palisades Group, predicts that the Fed could make at least four rate cuts before year-end, which could bring mortgage rates lower than their current mid-6% averages. Additionally, home buyers may have more options as more listings hit the market. Inventory levels were up a significant 20% in July compared to a year ago, according to NAR.
"Our expectation is that this expected drop in mortgage rates will continue to put pressure on housing prices due to the pent-up demand from those who have been waiting on the sidelines," Ghosh says. "This demand will more than offset any increase in supply."
Pending Home Sales By Region
The Northeast was the only region in the U.S. to see a year-over-year increase in pending home sales in July, up 2.4% compared to July 2023, according to NAR.
"The New England region has performed better than other regions in recent months," Yun says. "Lower, falling mortgage rates will undoubtedly attract buyers into the market."
