U.S. Pending Home Sales Show Modest Increase in August

(Reuters) – Contracts to buy U.S. previously owned homes edged up in August from July's record-low level as a drop in mortgage interest rates in anticipation of Federal Reserve benchmark rate cuts provided a modest lift to affordability.

The National Association of Realtors (NAR) reported on Thursday that its Pending Home Sales Index, based on signed contracts, rose by 0.6% last month to 70.6 from July's 70.2, marking the lowest reading since the series began in 2001. Economists polled by Reuters had forecasted a 1.0% rise in contracts, which typically convert to sales after one or two months.

Regionally, pending home sales increased in the West, South, and Midwest while declining in the Northeast. Year-over-year, the national sales rate is down 3.0% from August 2023.

Lawrence Yun, the NAR's chief economist, noted, "A slight upward turn reflects a modest improvement in housing affordability, primarily due to mortgage rates descending to 6.5% in August." This decline followed a drop in the yield on the 10-year Treasury note throughout August, which is used as a benchmark for mortgage rates, amidst expectations of a Fed rate cut during its September meeting. The Fed did indeed cut rates last week by a more significant 50 basis points than expected, with further reductions anticipated in the upcoming months, pushing mortgage rates closer to 6% this month.

Despite the lowering of borrowing costs, sales activity is expected to remain subdued, as rising home prices continue to offset some savings, and inventory levels remain low. Yun indicated that the affordability outlook may improve with a 30-year fixed-rate mortgage now around 6%, resulting in $300 monthly savings on a $300,000 home compared to a few months ago.