US Pending Home Sales Drop 2.2% Year-Over-Year in July, Reflecting Housing Market Strain

Pending home sales in the United States fell 2.2% on a year-over-year basis in July, a sharper decline than the previous month’s revised 0.3% drop, according to the latest data from the National Association of Realtors (NAR). The monthly index also slipped, underscoring the ongoing challenges facing the housing market as elevated mortgage rates and limited inventory continue to weigh on buyer activity.

What the Data Shows

The Pending Home Sales Index (PHSI) is a forward-looking indicator based on contract signings for existing homes. A decrease in pending sales suggests that closed sales may soften in the coming months. The July figure marks the fourth consecutive month of year-over-year declines, signaling that the housing market has yet to find its footing.

Regionally, the NAR reported mixed performance, with the West experiencing a slight uptick, while the Northeast, Midwest, and South all saw declines. The data aligns with other recent housing indicators, including existing home sales, which have remained subdued due to affordability constraints.

Why This Matters

The persistent drop in pending home sales reflects a broader trend of reduced housing affordability. With the average 30-year fixed mortgage rate hovering near 7%, many potential buyers have been priced out of the market. At the same time, homeowners who secured lower rates earlier are reluctant to sell, limiting inventory and keeping prices elevated.

For the broader economy, a sluggish housing market can have ripple effects, impacting everything from home improvement spending to moving-related services. Economists watch pending sales closely as a leading indicator of future existing home sales, which account for a significant portion of U.S. economic activity.

What to Watch Next

Market participants will be looking to upcoming data on new home construction and mortgage applications for signs of a turnaround. If mortgage rates ease later this year, pent-up demand could revive activity, but for now, the housing market remains in a holding pattern.

Conclusion

July’s 2.2% year-over-year drop in pending home sales underscores the ongoing strain in the U.S. housing market. High borrowing costs and scarce inventory continue to deter buyers, and the path forward depends largely on interest rate movements and inventory improvements. For now, the market remains challenging for both buyers and sellers.

FAQs

Q1: What are pending home sales?
Pending home sales measure the number of homes under contract to be sold but not yet closed. They are a leading indicator of future existing home sales, typically closing within one to two months.

Q2: Why did pending home sales drop in July?
The decline is primarily attributed to high mortgage rates, which have reduced affordability, and a lack of available inventory, as many homeowners are staying put with lower-rate mortgages.

Q3: How does this affect home prices?
While lower demand can slow price growth, limited inventory continues to support prices. In many areas, prices remain elevated, making it difficult for first-time buyers to enter the market.