Today’s Pending Home Sales from the National Association of Realtors came in at 70.2 for July, its lowest on record since the series’ inception in 2001. This was a big negative surprise, as pending home sales were expected to be up slightly from last month but were actually down -5.5%. Pending home sales are a leading indicator for the housing sector based on existing homes. Typically, they lead existing home sales by a month or two, in the period between when a home goes under contract and when it is officially sold.
Pending home sales will be expected to improve once the Federal Reserve starts to cut interest rates next month, which should be reflected in longer-term mortgage rates shortly thereafter. However, that has not been the case over the last three months, which has seen the Freddie Mac 30-year fixed rate mortgage fall from a peak of 7.2% in May down to 6.7% at the end of July.
We expect Pending Home Sales to show some life for August sales in the next release, as mortgage rates have continued to decline to 6.4%. If sales remain weak or worsen, it would be a major warning flag.
