What the February pending home sales data shows
Pending home sales picked up 2% in February as buyers took advantage of growing inventory and lower mortgage rates. Despite this modest monthly growth, contract signings were 3.6% lower annually, remaining near recent record lows. Mortgage rates hit a recent peak of 7.04% in January before falling each week through the beginning of March. Some homebuyers used this as an opportunity to secure a loan, possibly because many do not expect this falling mortgage rate trend to continue in the coming months. Inventory was up 27.5% year over year in February, also playing in buyers’ favor.
New-home sales, which are also based on contract signings, ticked higher in February, climbing 1.8% month over month and 5.1% year over year after a rather cool January reading. Home shoppers continue to lean on new construction amid limited existing for-sale options. Buyers are increasingly favoring smaller, more affordable new construction, which has resulted in a softening in the median sales price of newly built homes.
Market activity continues to vary regionally, but all four regions saw a dip in contract signings annually, and the Northeast and West saw a monthly dip as well. The South led the regions with a 6.2% monthly increase, followed by the Midwest (+0.7%), while the Northeast (-0.9%) and the West (-3.0%) saw falling pending sales. On an annual basis, the Midwest (-4.7%) saw the biggest dip, followed by the West (-3.5%), the South (-3.4%), and the Northeast (-2.5%).
What this means for buyers, sellers, and the housing market
Pending home sales, or contract signings, measure the first formal step in the home sale transaction, namely, the point when a buyer and seller have agreed on the price and terms. Pending home sales tend to lead existing-home sales by roughly one to two months and are a good indicator of market conditions. Housing affordability remains the chief concern of many hopeful buyers, and any improvement in housing costs is met with an uptick in activity. As the weather and the housing market warm into the spring, mortgage rates have softened slightly, offering sidelined buyers the opportunity to get into the market. However, many households are still priced out, opting to take advantage of easing rents to minimize housing costs.
