Pending Home Sales Fell in September. Have Buyers Had It With High Prices?
by Maurie Backman | Updated July 19, 2021 - First published on Oct. 31, 2020
U.S. home prices have skyrocketed this year. Are buyers finally saying no?
There's a reason buyers have clamored to purchase homes since summertime: Mortgage rates have fallen to historic lows, and borrowers want to capitalize on those great opportunities. But to do so, they need affordable homes to buy -- and those have been difficult to come by.
There's been a major shortage of homes on the market since the coronavirus pandemic kicked into gear, and that's driven home prices up -- so much so that many buyers found themselves having to outbid others to snag the limited inventory available these past months.
But new data from the National Association of Realtors reveals that buyers have, perhaps, had enough. Pending homes sales, a measure of signed contracts on homes for sale, fell 2.2% in September compared to August -- the first decline in four months.
Pending sales fell 3.2% in September in the Midwest, 3% in the South, and 2.6% in the West. The Northeast was the only region to see pending sales increase in September -- by 2% -- and the reason likely is the mass exodus of Manhattan residents from New York City, the early epicenter of the pandemic.
Are buyers done with overpaying?
That pending home sales declined in September could be a sign that buyers are no longer willing -- or able -- to pay a premium for homes. It could also be a sign that inventory is not only limited, but far from stellar, and that buyers refuse to pay above normal market value for dated fixer-upper homes.
But will that do the trick in bringing home prices down? Probably not, or at least not initially. If pending home sales continue to decline, indicating a drop in demand, then we may see home prices slowly but surely decrease. But what's most likely to fuel a substantial decline in home prices is added inventory.
Many sellers have held off on listing their homes due to the coronavirus pandemic. For some, it's been a matter of not wanting to make a major change at a time when life is already far from normal. For others, it's been a matter of safety concerns -- specifically, not wanting to deal with strangers romping through their living space. Either way, housing inventory has been tight for months, and once it opens up, we should see home prices head toward pre-2020 levels.
Of course, that means one thing for buyers: Those interested in purchasing homes should get their finances in order now to increase their chances of mortgage approval when the time comes. There's a strong likelihood mortgage rates will stay low for quite some time, so once home values come down, many buyers who are currently priced out of the market may be eager to pounce.
Mortgage lenders are most likely to offer their best rates to borrowers with high credit scores (scores in the mid-700s or above), low debt, and stable jobs. Prospective buyers who can't put a checkmark next to all those items right now would be wise to improve their financial pictures in the near term -- before housing inventory numbers explode.
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