Pending Home Sales Weaken For a Second Month

U.S. pending home sales dipped by 1.8% in July, the second consecutive month of declines, as a shortage of properties on the market hampered demand.

The Pending Home Sale Index, a seasonally adjusted measure of signed contracts, dropped to a three-month low last month, according to the report from the National Association of Realtors.

The weakening of sales isn’t due to a drop in demand, said Lawrence Yun, chief economist of the National Association of Realtors. Homebuyers seeking properties are still being helped by mortgage rates that remain near or below 3%, he said.

The drop is being caused by a housing shortage that stems from years of underbuilding in the wake of the 2008 financial crisis, Yun said. That dearth of inventory was worsened by the start of the Covid-19 pandemic last year, which created supply-chain bottlenecks and spikes in the prices of materials such as lumber, he said.

“The market may be starting to cool slightly, but at the moment there is not enough supply to match the demand from would-be buyers,” Yun said. “That said, inventory is slowly increasing and home shoppers should begin to see more options in the coming months."

Pending sales dropped 6.6% in the Northeast, and 3.3% in the Midwest, the report said. In the South, signed contracts were down 0.9%. The only region to rise was the West, up 1.9%, the report said.

Bidding wars are still happening, but not at the frantic pace seen months ago, said Yun. Many buyers continue to submit bids that don’t contain inspection or appraisal contingencies that would allow them to get out of a contract if certain conditions aren’t met, he said. Potential buyers do that to make themselves more attractive to sellers choosing between multiple offers.

“Homes listed for sale are still garnering great interest, but the multiple, frenzied offers – sometimes double-digit bids on one property – have dissipated in most regions,” he said. “Even in a somewhat calmer market, a number of potential buyers are still choosing to waive appraisals and inspections.”

The Fed started purchasing Treasuries and mortgage-backed securities last March to improve the outlook of the credit markets. This move pushed interest rates to an all-time low in early January, according to Freddie Mac.

The average U.S. rate for a 30-year fixed mortgage has been below 3% since the first week of July, according to Freddie Mac data. Last week, the average was 2.87%.