Fewer Home Purchase Contracts Were Signed in September. Here's What That Means for Buyers

A man sitting next to his wife and baby at a sunny kitchen counter and signing documents from a female mortgage lender.

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Is the housing market starting to cool off after months of steady buyer demand?

Key points

  • Pending home sales, which measure signed contracts for existing homes, fell in September.
  • The decline could be a sign that buyer demand may finally be waning.

The housing market has been on fire since the start of 2021. Low mortgage rates have kept buyers motivated to purchase homes, even with inventory being down and property values being up.

But in September, pending home sales dropped, surprising analysts, who were expecting a gain. Pending home sales measure the number of signed contracts to buy an existing home. In September, they fell 2.3% compared to August, as per the National Association of Realtors.

When pending homes sales drop it can be an indication that buyer demand is starting to wane. But is that what's happening now?

Rising mortgage rates may have pushed buyers away

In September, mortgage rates were competitive on a historical basis. But they were higher compared to where they sat in July and August. That alone may have spooked buyers and caused them to pull back on making offers on existing homes.

With home prices sitting at record highs, many buyers are no doubt relying on low mortgage rates to make up the difference as far as affordability goes. Even a modest rate hike may have led to a decline in buyer demand.

That said, another reason why pending home sales may have dropped is that there wasn't enough housing inventory available to support higher numbers. When there are fewer homes available to purchase, fewer contracts are apt to get signed.

The buyer takeaway

If you're in the market for a new home, you may be wondering whether a decline in pending home sales is a good thing. The answer is yes, to an extent, it could be.

If that drop is largely due to a decrease in buyer demand, then you may, as a prospective buyer yourself, have less competition in the near term. That means you may not be as likely to get stuck in a bidding war on a home.

But again, limited inventory may have also contributed to a decline in pending home sales. Also, the start of the school year may have played a role. Families in search of new homes may have put those plans on pause to focus on adjusting to the beginning of school -- especially after an academic year when so many students learned remotely.

Still, if you're interested in buying a home, it does pay to keep looking. You should know that mortgage rates have risen since September, and while they're still quite competitive, you'll pay a bit more interest on a home loan if you sign a mortgage today. If you were banking on an ultra-low mortgage rate to offset the higher price of today's homes, that may not happen.

In the coming months, we could see pending home sales decline even more because purchase activity tends to naturally slow in the winter. Buyers who keep searching and making offers may have better luck purchasing a home due to less competition in the market.

Of course, some buyers may prefer not to search for a home during the winter. But it could pay to move forward with a home purchase sooner rather than later since mortgage rates have slowly but steadily been trending upward since summertime.

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