Pending home sales, as measured by the National Association of Realtors (NAR), is one of the most forward-looking indicators of the housing market. It tracks the number of home sale contracts that have been signed during the month but not yet closed.
NAR’s Pending Homes Sale Index plunged 5.5% in July and that may turn out to be good news for home buyers. Since the real estate market is all about supply and demand, the rising supply of homes may force sellers to be less aggressive on their list prices
Motivated sellers may not only price their homes at a more attractive level, they may be more open to negotiation. And with fewer buyers competing for a property, there should be fewer bidding wars. The result should be a return to price stability in the housing market.
But the question is, why are home sales falling so quickly at a time when mortgage rates have fallen below 6.5%? There could be two reasons.
One, would-be buyers may be waiting for rates to fall even more. Many forecasts suggest mortgage rates will continue to drift lower toward the end of the year.
Is affordability now a bigger issue?
Another possibility is that the people who can afford to buy a home at these near-record prices, with interest rates close to 7%, may have already made a purchase. Affordability may be limiting the rest of the buyers' pool.
Lawrence Yun, NAR’s chief economist, says there could be additional reasons.
"A sales recovery did not occur in midsummer," Yun said. "The positive impact of job growth and higher inventory could not overcome affordability challenges and some degree of wait-and-see related to the upcoming U.S. presidential election."
NAR data show the Midwest took with biggest sales hit, with pending home sales off by 7.8%. In the South, pending home sales were down by 6.5%. The Northeast region showed the most strength, with pending home sales down by only 1.4%.