Home sales may be set to rebound despite the highest mortgage rates in decades.
Pending home sales, an key barometer for the real estate sector, increased in September, the National Association of Realtors said Thursday. The NAR’s index rose 1.1 percent compared with the prior month, defying forecasts for a one percent decline.
The NAR’s pending home sales index tracks contract signings for existing homes. These are considered leading indicators for the housing market and typically show up as closed sales 45 to 60 days later.
Sales of existing homes have slumped over the past year as interest rates have soared from around three percent to nearly eight percent. Many owners are deciding to hang on to their current homes financed with lower interest rate loans rather than sell their homes and purchase their next home with a loan with a much higher interest rate. As a result, the number of homes for sale remains very low.
“Despite the slight gain, pending contracts remain at historically low levels due to the highest mortgage rates in 20 years,” Lawrence Yun, NAR chief economist, said in a statement. “Furthermore, inventory remains tight, which hinders sales but keeps home prices elevated.”
The NAR expects home sales this year to total 4.15 million, the lowest since 2008.
The downturn may be nearing an end. The NAR said it expects home sales to bottom at a 4.01 million home rate in the fourth quarter and then to start rising on a month-to-month basis next year. The NAR says it expects 4.71 million home sales in 2024.
That prediction, however, is based on an assumption that mortgage rates will drop to 6.3 percent by the fourth quarter of next year. Stronger-than-expected economic growth, however, may force the Federal Reserve to raise its benchmark rate further and signal that it intends to keep the stance of monetary policy tight for longer, which could keep mortgage rates elevated or even push them up further.