Home contract signings drop 4.7% from last year amid higher mortgage rates

Pending home sales, a gauge of homes entering contracts, rose by 0.3% in August from the prior month, yet they have fallen 4.7% year-over-year, according to National Association of Realtors figures. Economists surveyed by Bloomberg anticipated a more modest 3.9% decline when comparing the current year to last. Buyers proceeded to sign contracts in August despite inflation in mortgage rates, as reported by Lawrence Yun, the chief economist of the NAR.

Nevertheless, the housing market remains sluggish, with contract signings falling below last year's levels. This decline is attributed to higher mortgage rates negating the increased buying power resulting from job gains and income growth outpacing home price growth. Mortgage rates surged throughout the summer, tracking bond yields and oil prices upward due to persistent worries about the US national debt and the Iran War, culminating in rates around 6.7% by the end of August.

Contract activity declined year-over-year across all regions of the country, while signings increased in August in the South and West. The convergence of high mortgage rates and elevated prices has slowed down home buying and selling to a standstill. Contract signings, which generally transpire one to two months prior to a home being sold, are approximately 30% lower than pre-pandemic norms, Yun noted.

As a result, pending home sales, which serve as an early indicator of forthcoming sales activity due to homes going under contract before they are recorded as sold, have prompted most housing market observers to hold cautious expectations for sales in the remainder of the year, as mortgage rates seem to be stuck above 7%. Claire Boston, a Senior Reporter for Yahoo Finance, specializes in housing, mortgages, and home insurance.