Zillow reported on Tuesday that its metric tracking newly pending home sales fell year-over-year in September. The company said 227,569 homes newly went under contract that month, an 8.5% decline from September of the prior year.
Zillow noted the September drop was the largest annual decrease in that series since September 2023, based on its historical records. The firm defines pending home sales as when a house goes under contract and describes the metric as an early gauge of a slowdown because closings lag market conditions.
Zillow provided data for 50 large metropolitan areas. Among those 50 metros, the largest year-over-year percentage drops in pending sales occurred in Louisville, Cleveland, and Charlotte, N.C., each with declines in the double digits.
Pending sales lead closed sales by about two months, which makes them useful. Market Briefs reads housing data free every weekday.
Only three of the 50 metros showed nonnegative year-over-year changes in pending sales. Hartford, Conn. was flat, Milwaukee was up 0.8%, and Austin, Texas was up 6% versus one year earlier.
Zillow tied the pullback in pending sales to the recent move in mortgage costs, pointing to higher borrowing rates as the key factor behind the slowdown. Freddie Mac's measure of mortgage rates rose to 7.28% last week, which the fact set says was more than 0.6 percentage point higher than the 6.66% rate at the end of August.
Zillow chief economist Mischa Fisher told investors, "It tells us that we're headed to a pretty quiet October." Fisher said both the absolute level of rates and the speed of their increase affect housing demand, and he added that "If they were to stay roughly where they are, I do expect the impact would subside a little over time, because you have income continuing to grow and home values remaining flat."
He also said, "Affordability slowly improves, even if rates remain constant." Fisher downgraded his forecast for home sales this year, saying he expects home sales this year to finish about 1% higher than last year, down from an earlier forecast of about a 5% gain. "I would just characterizes this as the fourth year of just bouncing along the bottom," said Mischa Fisher.
For your portfolio, the data signal a quieter housing market ahead if rates stay high or rise further, with fewer contracts now pointing to slower closings later this year.
An eight percent drop points to a slower winter ahead. Join Market Briefs free and follow the pipeline.
