Why pending home sales just fell to their lowest level on record

The Big Picture

Pending U.S. home sales fell in September to the lowest level on record, according to a MarketWatch report published Oct. 20. The report said the decline came as the average rate on a 30-year mortgage crossed above 7%, prompting buyers to pull back from the housing market.

Pending home sales track contract signings to purchase homes. They provide a measure of homebuying activity at the point when buyers and sellers have entered into agreements, rather than when a transaction has been completed.

MarketWatch characterized the downturn in two ways. Its headline described pending sales as sinking to a 25-year low, while the article description said September contract signings reached the lowest level on record. The source material does not explain the difference between those descriptions.

What Happened

Contract signings to buy homes declined in September, MarketWatch reported. The publication said the drop brought pending sales to their lowest recorded level.

The report attributed the retreat in signings to high mortgage rates. In particular, MarketWatch said buyers fled the market after the average 30-year mortgage rate moved above 7%.

The available report did not provide a numerical index reading for pending sales, the size of the September decline, or a comparison with the prior month or prior year. It also did not identify geographic areas or housing-price categories that may have accounted for the decline.

Why It Matters

Signed purchase contracts are an important marker of activity in the housing market because they reflect decisions by buyers to move ahead with a home purchase. A decline in those signings indicates that fewer buyers entered contracts during the period measured.

MarketWatch's report points to mortgage rates as the central factor in September's weakness. When the average 30-year rate rose above 7%, the publication said, buyers pulled back. The report did not offer further detail on whether buyers delayed purchases, abandoned contracts or shifted to other parts of the housing market.

The reported record low in pending sales underscores the degree to which elevated mortgage rates were associated with weaker buyer participation in September. Still, the source material does not establish how long the pullback might last or whether contract signings changed after the period covered by the report.

Background

Pending home sales are measured through contracts signed to purchase homes. They are distinct from completed home sales because a signed contract can precede the closing of a transaction.

In its Oct. 20 report, MarketWatch used the phrase "25-year low" in its headline and said in its description that September contract signings were at the lowest level on record. Both descriptions signal a severe downturn in pending sales, but the source material does not provide the underlying historical series needed to reconcile the two labels.

The report also focused on the average 30-year mortgage rate crossing 7%. It did not provide the prior rate, a timeline for the increase, or projections for future mortgage costs.

What Happens Next

The source material does not include a forecast for pending home sales or mortgage rates. Future reports on signed purchase contracts will show whether September's record-low reading, as described by MarketWatch, was followed by a recovery or a continued slowdown.

For now, the available evidence is limited to September contract signings and MarketWatch's assessment that buyers retreated as the average 30-year mortgage rate moved above 7%.