More homebuyers were intent on securing a previously owned home last month, even as mortgage rates continued to rise and inventory problems persisted.
US pending home sales increased 0.9% in July, according to data released Wednesday by the National Association of Realtors. That was higher than the 1% drop Bloomberg economists had estimated.
On a yearly basis, pending transactions were down by 15.6%, slightly below Bloomberg’s prediction of a 15.7% decline.
The uptick in the index, a leading marker of the housing market’s health and an indication of closed sales in the next two months, is a sign that some homebuyers are still in the resale market despite difficult housing conditions. But many others continue to turn to new construction, other data has found.
“The small gain in contract signings shows the potential for further increases in light of the fact that many people have lost out on multiple buying offers,” said NAR chief economist Lawrence Yun in a statement. “Jobs are being added and, thereby, enlarging the pool of prospective home buyers. However, rising mortgage rates and limited inventory have temporarily hindered the possibility of buying for many.”
Contract signings in the Northeast shrank by 5.8%, which was also a drop of 20.2% from July 2022. Pending home sales also fell 0.4% in the Midwest; that’s down 16% from a year earlier.
Activity in the South saw an increase of 2% in July, the index found, but was still down 10.9% year over year. The West registered an improvement of 6.2% month over month, but was also down 12.8% from the previous year.
“Interestingly, the West region experienced a meaningful price decline in the past year and buyers are quickly returning as a result,” Yun said.
Last month, the average 30-year fixed mortgage hit 6.96%, after swinging between 6.50% and 6.70% the previous two months. The increase prompted more homeowners to stay put — tightening inventory on the resale market as many refused to sell. As a result, existing home sales slid 2.2% in July, with overall sales down 16.6% from a year prior.
At the same time, new home sales edged higher as buyers on the hunt turned to newly built homes due to the shortage of previously owned homes. NAR’s pending home sale index does not capture contract signings for new homes, however.
But other data points show the rise in popularity of new homes among buyers.
For instance, the volume of mortgage applications for newly built homes jumped 35.5% in July on a year-over-year basis, the Mortgage Bankers Association found. That’s up from a 26.1% uptick registered in June.
“Applications for purchase loans on newly constructed homes remained strong in July, as new homes continued to account for a growing share of homes available for sale,” Joel Kan, MBA’s deputy chief economist, said in a statement.
New homes are also attracting first-time buyers, who often turn to the resale market first. In July, almost a quarter of purchase loans backed by the Federal Housing Administration — mortgages often used by entry-level buyers — were for newly built homes, the MBA found. That’s the highest share since May 2020.
“FHA purchase loans are a popular option for many first-time homebuyers and this increasing trend in the FHA share is indicative of more first-time buyers looking to new homes as an option,” Kan said, “given the lack of for-sale inventory among existing homes and challenging affordability conditions.”