Even with declining mortgage rates, the number of pending home sales fell last month to the lowest level on record, a National Association of Realtors report reveals.
NAR's Pending Home Sales Index shows that the number of pending home sales dropped 5.5% in July and was down 8.5% compared with a year earlier, reaching the lowest level since the index was first established in 2001.
A lot of this has to do with timing. While spring and summer are typically peak buying seasons, home sales have been muted due to persistently constrained supply and high home prices, which have pushed many would-be buyers to the sidelines.
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And while median mortgage rates have declined somewhat, they're still above 6% — a far cry from the 3% rates of 2021.
Considering that nearly 9 out of 10 homeowners have mortgage rates lower than 6%, they've been reluctant to lose the discount by selling their home, known as the "lock-in effect." This has further restricted housing supply.
Homebuyers are in 'wait and see' mode
Money Report
Among buyers who can afford a home, many are likely waiting until mortgage rates decline further later this year, as is widely expected.
These expectations are driven by slowing inflation and an uncertain economic outlook, as indicated by the Federal Reserve signaling a potential cut to its benchmark interest rate.
As such, buyers might be in "wait-and-see" mode until home affordability improves, NAR's report says. Uncertainty about housing policy as an outcome of the U.S. presidential election in November is another factor.
Just don't expect home prices to necessarily drop. A decline in mortgage rates would encourage more buyers to enter the market, which could put upward pressure on home prices, NAR's report suggests.
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