Pending Home Sales Fall 7.3% to Record Low in September

What happened

Pending home sales fell 7.3% from August to September and 11.3% from a year earlier, according to the National Association of REALTORS®. Contract signings dropped in all four U.S. regions. The West fell the most, followed by the South, the Midwest and the Northeast.

RealEstateNews.com reports this is the lowest level since the index began in 2001. The consensus forecast had called for a 0.4% monthly drop. Compared with a year earlier, pending sales fell 15% in the West, 12% in the South, 9.4% in the Northeast and 8.7% in the Midwest.

"Market conditions weakened in September due to fast-rising mortgage rates," said NAR Chief Economist Lawrence Yun. He added that "mortgage rates could be topping out," though he called energy prices and inflation "highly uncertain."

New construction slowed too. Builder confidence fell three points to 29 in October, the lowest reading since June 2012, according to NAHB's Eye On Housing. In the same survey, 43% of builders cut prices and 65% offered sales incentives.

Rates have eased a little. Freddie Mac reports the average 30-year fixed rate fell to 7.32% as of October 22.

Why it matters for agents

Pending contracts usually turn into closings within one or two months, so this drop points to weaker closings ahead. Closed sales were already slow. NAR's existing-home sales report shows sales rose 1.5% in September but were down 2.2% from a year earlier. Yun said August and September were the two slowest months for sales this year.

The balance has moved toward buyers. "Higher inventory and lengthening days on market give buyers improved negotiating power," Yun said. "Home sellers need to be realistic about local market conditions, which could require price discounts and other incentives to attract buyers." Listing agents can use this when talking with sellers about pricing.

For buyer agents, new homes may offer the best deals. Joel Berner, senior economist at Realtor.com, told RealEstateNews.com that buyers can negotiate rate buydowns that could lower their rate by a full percentage point. "Buyers hold the negotiating power in the new home market," he said.

Don't expect a quick turnaround. Realtor.com senior economist Hannah Jones said buyers will likely keep facing tough affordability "through year-end." She also said 30-year rates are expected to stay around 7.5%.