Pending Home Sales Tumble 7.3% in September to a Record Low as Mortgage Rates Rise

Contracts to purchase previously owned homes fell 7.3% in September to a reading of 66.0, the lowest level since the National Association of Realtors began tracking pending home sales in 2001, the group said Tuesday.

The decline was far larger than the 0.5% drop economists polled by Reuters had expected. Contracts were down in all four regions, and pending home sales stood 11.3% below a year earlier.

“Market conditions weakened in September due to fast-rising mortgage rates,” said Lawrence Yun, the NAR’s chief economist.

Rates near a three-year high

The 30-year fixed rate averaged 7.40% last week, its highest level in nearly three years, according to data from Freddie Mac cited by Reuters. The higher borrowing costs have been tracking Treasury yields upward as the U.S.-Israeli war with Iran fans inflation, Reuters reported. US News America recently examined how the split housing market is playing out at 7.4% mortgage rates.

Weakness across regions and metros

Regionally, the West recorded the largest monthly decline at 9.2%, with a reading of 49.3; the Northeast saw the smallest at 4.2%, with a reading of 59.0. From a year earlier, pending sales were down 15.0% in the West, 12.0% in the South (79.2), 9.4% in the Northeast and 8.7% in the Midwest (67.3).

Among the 50 largest metro areas tracked by the NAR, the smallest annual declines were reported in Nashville-Davidson-Murfreesboro-Franklin, Tennessee (2.0%), Hartford-West Hartford-East Hartford, Connecticut (2.1%) and San Francisco-Oakland-Fremont, California (3.5%), according to HousingWire.

Newer data suggests the weakness has continued into October. HousingWire Intelligence, which uses more current figures than the NAR index, reported 51,947 new pending single-family sales for the week ending Oct. 16, down 13.1% from a year earlier.

Yun said housing affordability is more affected by changes in mortgage rates than by job growth or income gains. “Given that mortgage rates have already risen much more than the Federal Reserve’s short-term interest rate hikes, mortgage rates could be topping out,” he said. With few distressed properties on the market, prices are holding steady, he added, and “buyers and sellers may simply be holding back until mortgage rates move favorably.”

The index had risen 0.3% in August before September’s drop.

Reporting based on coverage by Reuters and HousingWire.