Pending Home Sales Dropped in June, Which Means the Housing Market Could Be Cooling Off

A decline in sales could actually be good news for buyers.

There's been a ton of demand to buy a new home as mortgage rates have hovered close to record lows for the majority of the year. But in June, pending home sales fell 1.9% compared to May, according to the National Association of Realtors. And that could be a sign that the housing market is finally starting to calm down.

Will buyers soon enjoy lower home prices?

Pending home sales refer to sale contracts to purchase a home that have been signed but not yet closed upon, and it's a measure of the strength of the housing market. At this point, home prices are sitting at record highs, but that's been a deterrent for many buyers.

In May, home prices rose 17% compared to the previous May, according to the S&P Case-Shiller national home price index. That represents the largest annual gain on record, and it could explain why pending home sales were down last month.

Of course, low real estate inventory has been an issue as well. In fact, a big reason home prices have soared this year is that there haven't been enough properties for buyers to choose from. So what's been happening is that buyers have been duking it out over the same limited homes, trying to outbid one another, and driving home prices up.

Now Realtor.com does report that the number of newly listed homes in June rose 5.5% compared to June of 2020. But on a whole, inventory is still well below normal levels. And that's making it a very tough market for today's buyers to navigate.

Should you buy a home right now?

Based on where home prices are sitting and the amount of competition on the market, now's not really an ideal time to be buying, even with mortgage rates being so competitive. But if inventory slowly starts to increase and buyers start getting more conservative with how much they'll pay for a home, then the situation could improve later on in the year.

If you have a compelling reason to buy a home now -- say, your lease is coming to an end and you don't want to renew it for another year -- then you may want to move forward with your home search. Otherwise, it could pay to sit tight for a while.

There's a strong chance that mortgage rates will remain competitive well into 2022, and possibly beyond. Or, to put it another way, if you remove yourself from today's tough housing market and wait things out, you won't necessarily lose out on the chance to lock in a competitive interest rate on a home loan. What you may do, however, is spare yourself a world of stress and avoid overpaying for a home that would normally sell for a lot less.

Furthermore, waiting for more inventory to reach the market means you'll be less likely to wind up settling for a home you're not really in love with. That alone makes waiting things out worthwhile.