Pending home sales and applications for mortgages to purchase a home are near historic lows, and lower mortgage rates have not stimulated demand.
By Wolf Richter for WOLF STREET.
Pending home sales – tracking the number of contracts signed – were unchanged in September from August, and were down 0.9% from the collapsed levels a year ago, seasonally adjusted.
Pending home sales compared to the Septembers in prior years:
- 2024: -0.9%
- 2023: +1.2%
- 2022: -8.3%
- 2021: -35.1%
- 2020: -41.1%
- 2019: -30.7%.
The new normal? This completes the third year in a row that pending sales have zigzagged along record low levels in the data by the National Association of Realtors, which goes back to July 2010. There simply has been no improvement for three years (historic data via YCharts):
Pending sales are based on contract signings and track deals that haven’t closed yet and could still get canceled because buyers cannot afford homeowner’s insurance, or cannot sell their own home, or for other reasons.
But the average mortgage rate for conforming 30-year fixed mortgages declined by 7 basis points to 6.30% in the latest week, the lowest level in a year, according to the Mortgage Bankers Association today.
Since the end of May, mortgage rates have dropped by 68 basis points (from 6.98%). Yet home sales have continued to zigzag along the record low levels.
Mortgage rates, according to the MBA’s measure, bottomed out in September 2024 at 6.13%, just before the Fed started cutting interest rates.
But this range between 6% and 7% was at the low end of the historic range before 2008 and before QE – including the Fed’s purchases of MBS – which distorted everything.
Applications for mortgages to purchase a home in the latest week ticked up from the drop of the prior week, but not enough to make up for all of the drop, according to data from the MBA today.
These purchase mortgage applications are an indicator of home sales in the near future.
Demand for mortgages to purchase a home began to plunge over three years ago and has been wobbling along these very low levels ever since.
Compared to the same week in 2019, purchase mortgage applications were down by 34%, the new normal – despite the much lower mortgage rates. The immensely hyped theme that lower mortgage rates would unleash waves of demand just hasn’t panned out.
Pending home sales by region.
A map of the four Census Regions is posted in the comments below.
In the South, pending sales ticked up 1.1% in September from August, and by 0.9% year-over-year, seasonally adjusted, according to the NAR today.
Compared to the Augusts of prior years:
- 2024: +0.9%
- 2023: +1.1%
- 2021: -35.0%
- 2020: -39.1%
- 2019: -28.3%.
In the West, pending sales dipped by 0.2% in September from August, and were down 5.3% year-over-year.
Compared to the Septembers of prior years:
- 2024: -5.3%
- 2023: +3.9%
- 2021: -42.1%
- 2020: -47.8%
- 2019: -39.5%.
In the Northeast, pending sales rose by 3.1% month-to-month, and were a hair higher than a year ago, seasonally adjusted.
Compared to the Septembers of prior years:
- 2024: +0.5%
- 2023: +3.5%
- 2021: -28.5%
- 2020: -42.5%
- 2019: -29.7%.
In the Midwest, pending sales fell by 3.4% in September from August and by 1.5% year-over-year.
Compared to the Septembers of prior years:
- 2024: -1.5%
- 2023: -1.6%
- 2021: -33.0%
- 2020: -37.6%
- 2019: -27.4%.
Clearly, the market is not thawing. Prices are still too high after they exploded by 40%, 50% or even 70% in specific markets over the course of 2-3 years.
They’d exploded because the Fed had forced mortgage rates down via massive purchases of Treasury securities and MBS, to where mortgage rates dropped below 3% while inflation was spiking toward 9%, and borrowing at 3% with inflation at 5%, 6%, 7%, and then higher was free money, better than free money, and when money is free, prices don’t matter, and home prices exploded.
But those prices don’t make economic sense, they’re too high, they’ve destroyed demand. And in some markets, they have started to come down fairly hard:
The 23 Bigger Cities where Condo Prices Dropped by 12% to 28% through September
The Cities Where Condo Prices Are Now Below their Housing Bubble Peaks 20 Years Ago
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The four Census Regions of the US:
The lower mortgage rates will eventually help, BUT at much lower levels than where they are now. I still want to buy a home before I die, but hard to argue at $500 rent.
How “unhealthy” of a correction is this? I understand that the price/rate equation was totally out of whack during the free money era, but it now feels like we’re returning to a more reasonable place, historically.
Are we unwinding, or is this just the eye of the storm?
It’s a twist to what they say about the economy …
“It’s the price stupid!”
Anyone, especially agents trying to tell you otherwise is either stupid, manipulative or naive, perhaps elements of all 3 at once. Especially for folks in HCOL area, no $1M crapshack in sketchy hood is not the new norm
“the average mortgage rate for conforming 30-year fixed mortgages declined by 7 basis points to 6.30% in the latest week, the lowest level in a year.”
The hopium is on full blast: ATH indexes and languishing yields.
Trade agreements and rate cuts are purported to usher in the golden-est of this golden age!
Reality may show that market rates have already bottomed, and will turn upward after this cut.
Mortgage applications may stay low, and transactions may be dominated by cash buyers?
The price drops are abundant and the lack of price history on most of the popular RE sites suggests people are again doing their homework before buying?
I don’t think your average buyer thinks about historical rates but rates and mortgages their friends and family have. Doesn’t mean it will happen and reality won’t hit but I am sure many are seeing where things are at in the Spring.
Hopefully this will continue on for a decade or more. It would be good for generations to grow up believing house prices can only go down, and real estate, at least in the form of single family housing, is a terrible investment.
Wolf, this is unrelated. I think it breaks one of your rules. I’m too impatient to wait for your next article on the subject. But can you bring back “The Most Reckless Fed Ever” headline with a twist after today’s rate cut:
“Still a Fairly Reckless Fed”?
We’re a long ways from that. But I will if the Fed will.
Houston, we have a problem; house prices are too darned high.
“Clearly, the market is not thawing. Prices are still too high after they exploded by 40%, 50% or even 70% in specific markets over the course of 2-3 years.”
Who or what caused the problem?
“They’d [prices] exploded because the Fed had forced mortgage rates down via massive purchases of Treasury securities and MBS, to where mortgage rates dropped below 3% while inflation was spiking toward 9%,…”
This is the Fed’s “wealth effect;” increased paper wealth for asset holders. Both houses and stocks were targeted way back in 2010 to reinflate these asset bubbles after the GFC collapse in 2008-2009. There are no more free markets. This is central planning; a command and control economy. The results are predictable and devastating to the bottom 90% of the economy.
The U.S. housing market is FUBAR. The only workable solution going forward is much lower housing prices. Just back out all of the price gains since 2019. Absent further (misguided) Fed policy, that will happen, but will likely take years.
It’s a direct result of massive market interventions by .gov and the Fed. This was intentional. This was policy. The Fed could and should be replaced with the U.S. 2 yr. Note yield. See former USSR for recent example of a failed Socialist State. Let’s not be USSA.
Both U.S. housing and stocks are (each) in another asset bubble. Think dot com + housing bubble 1.0. Together, since it wasn’t bad enough each time when they were separate, so let’s combine them. That should be fun!
Based on the historical record, asset bubbles always burst and prices mean revert. An inconvenient truth. Enjoyed the boom? Now enjoy the bust.
The lack of new mortgages created clearly will affect the supply/creation of MBS. Does this lack of supply increase demand?