Pending Home Sales Fall to Record Low as Mortgage Rates Surge

Pending U.S. home sales fell 7.3% in September, a record low, as surging mortgage rates deepened a slowdown already weighing on the housing market, the Financial Times reported.

The decline in signed contracts, a leading indicator of future home closings, signals that rising borrowing costs are pushing prospective buyers to the sidelines faster than sellers are willing to adjust asking prices, according to the Financial Times.

Why Did Pending Home Sales Drop So Sharply?

The 7.3% monthly drop reflects buyers backing away from contracts as borrowing costs climbed, according to the Financial Times. Pending sales measure signed contracts rather than closed deals, so the figure points to weaker closings in the months ahead rather than a one-time dip.

The record-low reading marks a continuation of a slowdown that has built over recent quarters, the Financial Times reported, as affordability pressures keep a widening share of would-be buyers out of the market.

How Are Mortgage Rates Driving the Slowdown?

Rising mortgage rates are the direct cause cited for the September decline, according to the Financial Times. Higher borrowing costs raise the monthly payment on a given home price, which narrows the pool of buyers who qualify for financing or are willing to stretch their budgets.

The rate increase comes against a broader economic backdrop in which inflation has remained a persistent factor in household finances. A separate HTT News report found the U.S. inflation rate stood at 3.7% as of October, a level that has tempered claims of robust economic growth and kept pressure on the Federal Reserve's rate path. Read more on inflation's effect on growth claims.

What Does the Record Low Mean for Buyers and Sellers?

For buyers, the data suggest financing costs are outweighing any benefit from softer home prices in many markets, according to the Financial Times. For sellers, a falling pool of signed contracts typically foreshadows slower closings and, if the trend persists, further price concessions.

The mismatch between what sellers are asking and what buyers can afford at current rates has been a recurring theme in the housing slowdown, the Financial Times reported, though the report did not specify regional variation in the September figures.

What Happens Next in the Housing Market?

The trajectory of mortgage rates will largely determine whether pending sales stabilize or fall further, according to the Financial Times. Housing activity tends to respond with a lag to rate changes, meaning any relief from the Federal Reserve or bond markets would take time to show up in contract signings.

Until borrowing costs ease, the record-low reading in pending sales points to continued softness in closed transactions through the end of the year, based on the trend described in the Financial Times report.

The full Financial Times report is available at ft.com.