Pending home sales are a significant indicator of the housing market's health, showcasing the number of homes under contract but not yet sold. It measures housing contract activity and is based on signed real estate contracts for existing single-family homes, condos, and co-ops.
When a seller accepts a sales contract on a property, it is recorded into a Multiple Listing Service (MLS) as a “pending home sale.” Most pending home sales become home sale transactions, typically one to two months later. Here are the latest Pending home sales trends for May 2024.
Pending Home Sales Trends
In September 2024, pending home sales showed a notable bounce back, climbing 7.4%, reflecting increased buyer activity driven by lower mortgage rates and expanded inventory choices. This analysis explores the current trends, regional variations, and expert forecasts for pending home sales trends and forecast 2024-2025.
Key Takeaways
- Pending Sales Increase: Pending home sales rose 7.4% in September 2024, highest since March.
- Regional Growth: All four major U.S. regions saw month-over-month gains.
- Year-over-Year Trends: Contract signings are thriving in the Northeast and West, showing healthy growth.
- Future Projections: Experts predict an increase in existing home sales to 4.47 million by 2025.
Current Market Overview
As of September 2024, the Pending Home Sales Index (PHSI) reached 75.8, marking the highest level since March. Month-over-month transactions rose in all major regions:
- West: Up by 9.8% from the previous month.
- South: Increased by 6.7%.
- Midwest: Saw an uptick of 7.1%.
- Northeast: Expanded by 6.5%.
The year-over-year comparison reflects that while the Northeast and West regions enjoyed contract signing increases of 3.3% and 12.3%, respectively, the Midwest and South remained stable, suggesting that conditions vary significantly by region.
Factors Influencing Pending Home Sales
Several factors currently influence the dynamics of pending home sales:
- Mortgage Rates: Lower mortgage rates noted in late summer spurred buyer interest, allowing more individuals the financial flexibility to invest in homes. As Lawrence Yun, Chief Economist at NAR stated, “Contract signings rose across all regions of the country as buyers took advantage of … lower mortgage rates” NAR Economic Outlook.
- Increased Inventory: More homes entering the market has allowed prospective buyers to have a wider selection, enhancing the likelihood of signing contracts.
- Economic Factors: With job growth expected to continue, the overall economic environment supports consumer confidence in the home-buying process.
Regional Trends in Depth
Northeast Region
The Northeast saw a modest increase with a PHSI of 65.6, highlighting a healthy market despite some historical sluggishness. Compared to the previous year, the region grew 3.3%, suggesting that buyers are finding appealing opportunities.
Midwest Region
The Midwest exhibited stability with a PHSI of 75.0. Although it did not show growth compared to last year, the 7.1% month-over-month increase demonstrates resilience in buyer activities.
South Region
The South region remains robust, maintaining a PHSI of 89.0, although it was unchanged from last year. This stability indicates that the area continues to attract buyers, potentially due to more affordable housing options compared to other regions.
West Region
Leading the pack, the West gained 9.8% month-over-month, reaching a PHSI of 64.0 and up 12.3% year-over-year. This significant growth suggests a resurgence of buying activity, likely fueled by the return of inventory and competitive real estate prices after previous declines.
Future Projections for Home Sales
Looking ahead, the NAR forecasts that existing home sales will gradually trend upward. By 2025, existing home sales are expected to reach 4.47 million, with an impressive hike to over 5 million in 2026. This positive outlook follows two years of sluggish sales and reflects a deeper return to stability in the housing market.
Yun also projects that the median existing-home price will see understated growth, landing at $410,700 in 2025 and $420,000 in 2026. Such forecasted increases align closely with the consumer price index, pointing to more consistent and gradual appreciation rather than rapid price jumps.
Mortgage Rate Trends
A critical component of housing affordability remains mortgage rates. Currently, the annual 30-year fixed mortgage rate is projected to slide to 5.9% in 2025, although a slight uptick to 6.1% in 2026 is anticipated. Lower mortgage costs are likely to encourage potential buyers who have previously been hesitant to enter the market, creating a domino effect on pending home sales.
Conclusion
Pending home sales trends serve as a key indicator of the housing market's future health and direction. The ongoing fluctuations guided by interest rates, inventory levels, and regional dynamics paint a picture of optimism for the coming years. As we look towards 2025 and beyond, it is crucial for buyers, homeowners, and investors to stay informed about these trends to guide their decisions effectively.
Pending Home Sales Trends for the Last 12-Months
The table shows data from regarding pending home sales in four regions of the United States – Northeast, Midwest, South, and West. The data reveals interesting trends in pending home sales across the regions. The National Association of Realtors (NAR) publishes monthly data on pending home sales, which is seasonally adjusted and presented in the form of a seasonally adjusted annual rate (SAAR) in thousands.
Here is the tabular data of pending home sales from May 2023 to May 2024. The units displayed are in thousands and are the seasonally adjusted annual rate.
The Pending Home Sales Index Explained
The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing. Pending contracts are good early indicators of upcoming sales closings. However, the amount of time between pending contracts and completed sales is not identical for all home sales.
Variations in the length of the process from pending contract to closed sale can be caused by issues such as buyer difficulties with obtaining mortgage financing, home inspection problems, or appraisal issues. According to the National Association of REALTORS®, the index is based on a sample that covers about 40% of multiple listing service data each month.
In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months. An index of 100 equals the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.
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