Ever wondered what those “pending” signs really mean when you see them popping up in your neighborhood? It’s more than just a house about to be sold, pending home sales are a crucial economic indicator that can tell us a lot about the direction of the housing market.
In simple terms, a pending home sale is when a buyer and seller have agreed on the price and signed a contract, but the final sale hasn’t gone through yet. It’s basically a glimpse into the near future of real estate, and lately, that future has shown some interesting shifts.
Now, if you’re anything like me, numbers and indexes can sometimes feel like a foreign language. But don’t worry, I’ll break it down in a way that makes sense. I’ve spent years watching these trends, both as someone who loves following the market and, well, as someone who has moved a few times too many. So, let’s dive in and make sense of this real estate puzzle!
Pending Home Sales Drop: What It Means for the Housing Market
What’s the Big Deal With Pending Home Sales?
Okay, so why should you care about pending home sales? It’s simple: they act like a sneak peek at future completed home sales. Think of it like this: the “pending” stage is the bridge between a house being listed and actually being sold. It’s like the appetizer before the main course – it gives you a taste of what’s to come. Here’s why that matters:
Future Market Trends: When pending sales are up, it generally means that more homes are likely to be sold in the near future, which can indicate a strong and healthy market. When they’re down, it could signal a cooling period or even a potential market slowdown.
Economic Health: The housing market is a big part of the overall economy. If people are buying homes, it’s a sign of consumer confidence and economic stability. Fewer pending sales might suggest some uncertainty.
Personal Planning: Whether you’re looking to buy, sell, or just stay informed, understanding these trends can help you make smarter decisions. Are you better off buying now or waiting? Is this a good time to sell or should you hold off?
The Latest Numbers: A Mixed Bag
So, what are the latest pending home sales telling us? Well, the National Association of REALTORS® recently reported that pending home sales took a bit of a dip in December, falling by 5.5%. Now, that’s a pretty significant drop, especially after four consecutive months of increases. Here’s a more detailed breakdown:
Overall Decline: The Pending Home Sales Index (PHSI), which tracks these contract signings, dropped to 74.2 in December. This was after hitting a low point of 70.2 last July, so while there had been improvement, the December drop is significant. Remember, an index of 100 represents the level of contract activity in 2001, which helps you see the bigger picture.
Regional Differences: The decline wasn’t uniform across the country. Some regions felt the pinch more than others:
The West saw the biggest month-over-month drop, with a 10.3% decrease in pending sales.
The Northeast wasn’t far behind, with an 8.1% fall.
The Midwest saw a 4.9% decrease in contract signings.
Even the South, which is often a more robust market, experienced a 2.7% decrease.
Year-Over-Year Drop: Not only did December have a drop from the previous month, but compared to December 2023, contract signings are down in all regions, with the Midwest showing the largest year-over-year decrease.
Why the Downturn? My Take
Okay, so the numbers are down, but why? As someone who keeps a close eye on market trends, here are a few factors I think are at play:
Mortgage Rates: High mortgage rates, without a doubt, are a major factor. Even though rates are not at their peak, they are still significantly higher than they were just a few years ago. This means it costs buyers more each month to borrow money for a home. For a lot of people, that increased monthly payment can be a serious barrier.
Affordability: I’ve been saying it for a while, but housing affordability is becoming a bigger issue. With prices still relatively high and interest rates on the rise, getting into the real estate market has become tougher for many people, especially first-time buyers. The data supports this, particularly in the Northeast and West, which are already known for higher-priced homes.
Economic Uncertainty: In my opinion, we are seeing a bit of an economic tug-of-war. Yes, there are some job gains, but there’s also ongoing concern about inflation and the general economic outlook. This uncertainty can make people hesitant to commit to big purchases like a house, which can impact the overall volume of transactions.
Regional Factors: It’s not just about economics. I often see how regional factors play a role. In the West, where prices are usually sky-high, higher mortgage rates have a more immediate and significant impact on affordability. The Northeast, which also has a history of being a high-cost region, sees a similar effect. On the other hand, job growth and affordable living in the South contribute to a more resilient housing market, but not enough to completely offset the national trend.
Digging Deeper Into Regional Differences
Let’s get into the specifics of how each region is performing, shall we? Here’s what the data tells us, paired with my insights:
Northeast: The drop here was pretty steep, down 8.1% from November. The Northeast is a region known for its higher cost of living, which is often compounded by older housing stock and higher property taxes. High mortgage rates are just making things even harder for buyers, and this has hit pending sales hard.
My take: This is not surprising. This region has been sensitive to cost increases for a while.
Midwest: This area saw a 4.9% decrease for the month, and a significant year-over-year decrease of 6.9%. It’s interesting because the Midwest often has a more stable market.
My take: I think the bigger year-over-year drop here is important to note. It tells me that maybe things are not as stable as we would have thought.
South: The South only had a 2.7% drop, which is the smallest decrease regionally. I’ve always found the South to be a bit of a wild card, so to speak, as it is less affected by high interest rates and affordability issues due to the cost of living generally being lower.
My take: While still down, the smaller decrease shows more resilience. I believe job growth in this region might help keep the market more stable here than in other parts of the country.
West: This region took the biggest hit, with a 10.3% decrease in pending sales. This reflects a very clear picture of buyer hesitancy due to high interest rates and the already-high prices.
My take: I expect this trend to continue. I’ve seen this before. The West is very sensitive to changes in mortgage rates, and high interest is going to cool this market down much more quickly than other regions.
Here’s a table to make all this a little easier to digest:
Region
Month-over-Month Change
Year-over-Year Change
Northeast
-8.1%
-1.3%
Midwest
-4.9%
-6.9%
South
-2.7%
-5.1%
West
-10.3%
-5.1%
Is This a Buying Opportunity? Or a Warning Sign?
Now, for the million-dollar question: What does all of this mean for you? Is this a sign that the market is correcting itself, and now is the time to buy? Or does it mean we are heading into a deeper slowdown? Here are my thoughts:
For Buyers: This could potentially be a good time to negotiate. With fewer buyers in the market, you might have a better chance of getting a good deal. However, don’t get too excited, mortgage rates are still high, and affordability is still a major factor. My advice would be: do not rush and do your due diligence before making a move.
For Sellers: If you’re thinking of selling, it might be a good time to temper expectations. The market might not be as hot as it once was. It’s a good idea to be realistic about your pricing and have a contingency plan in case your sale does not go through right away. The key is: do not price your house too high in this market.
The Overall Market: For the market as a whole, I think this is a sign that things are cooling off. The days of rapid price increases may be behind us, at least for now. It’s not time to panic, but it is definitely time to pay attention and be prepared. This correction is actually healthy in the long run, as we can’t have hyper-inflated values forever. I believe that for the market to become stable, it needs to go through these fluctuations.
The Road Ahead
So, what’s next? The real estate market is always evolving, but here are some factors I’m watching closely:
Mortgage Rate Movements: Whether rates go up or down, that’s going to be a big influence on buyer activity.
Economic News: Any major shifts in the economy will likely impact the housing market.
Regional Dynamics: I expect different regions to react differently to these shifts based on how affordable they are, as well as job growth and other local factors.
Seasonal Factors: I think the weather can be a factor here, too. This data includes December, and winter is often not the most active time for the real estate market. I think once the spring and summer kick in, we might see some activity pick up a little bit. But that’s just me personally.
Final Thoughts
Pending home sales are a valuable piece of the real estate puzzle. While the recent numbers indicate a slowdown, it’s important not to overreact. Real estate is a long game, and these numbers are just a snapshot in time. For all of you out there, whether you’re a buyer, seller, or just an observer, stay informed, be patient, and don’t be afraid to ask questions. That’s the most important advice I can give you.
Pending Home Sales Trends for the Last 12-Months
The table shows data from regarding pending home sales in four regions of the United States – Northeast, Midwest, South, and West. The data reveals interesting trends in pending home sales across the regions. The National Association of Realtors (NAR) publishes monthly data on pending home sales, which is seasonally adjusted and presented in the form of a seasonally adjusted annual rate (SAAR) in thousands.
Here is the tabular data of pending home sales from December 2023 to December 2024. The units displayed are in thousands and are the seasonally adjusted annual rate.
Month
Northeast
Midwest
South
West
Total
December 2024
62.3
74.3
90.6
57.7
74.2
Change Month over Month
-8.11 %
-4.87 %
-2.69 %
-10.26 %
-5.48 %
Change Year over Year
0.00 %
-7.70 %
-2.58 %
-5.41 %
-4.01 %
Previous
November 2024
67.8
78.1
93.1
64.3
78.5
October 2024
68.7
77.8
89.8
64.0
77.3
September 2024
65.6
75.0
89.0
64.0
75.8
August 2024
61.6
70.0
83.4
58.3
70.6
July 2024
64.6
67.8
83.5
56.2
70.2
June 2024
65.5
73.5
89.3
58.4
74.3
May 2024
63.6
70.4
83.7
56.7
70.8
April 2024
62.9
70.7
88.6
55.9
72.3
March 2024
65.1
78.1
95.8
61.0
78.2
February 2024
63.4
81.6
89.5
57.1
75.6
January 2024
63.6
73.7
88.5
61.1
74.4
December 2023
62.3
80.5
93.0
61.0
77.3
The Pending Home Sales Index Explained
The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing. Pending contracts are good early indicators of upcoming sales closings. However, the amount of time between pending contracts and completed sales is not identical for all home sales.
Variations in the length of the process from pending contract to closed sale can be caused by issues such as buyer difficulties with obtaining mortgage financing, home inspection problems, or appraisal issues. According to the National Association of REALTORS®, the index is based on a sample that covers about 40% of multiple listing service data each month.
In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months. An index of 100 equals the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.
Recommended Read:
United States Existing Home Sales Trends
Will the Housing Market Crash Again?
Housing Market Trends: Historic Low Pending Sales
Household Spending Expectations Plunge to Lowest Level Since 2021
New Home Sales Trends and Forecast
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