Pending home sales fell 2.5% in July month to month and were 0.3% lower compared with July 2018, according to the National Association of Realtors. Pending sales are signed contracts to buy existing homes, so it is a future indicator of closed sales for August and September.
This weaker-than-expected result came after two months of sales gains and may be a sign of just how sensitive today's borrowers are to even the smallest moves in mortgage rates.
The average rate on the 30-year fixed fell from around 4.2% at the start of May to around 3.8% at the start of July, according to Mortgage News Daily.
That brought a late surge of buyer interest to the spring market. The rate then reversed course and rose as high as 3.95% by mid-July. It then fell back to around 3.85% at the end of the month and fell more sharply through August.
The small increase in July could have accounted for at least some of the pullback in pending sales.
"Super-low mortgage rates have not yet consistently pulled buyers back into the market," said Lawrence Yun, chief economist of the NAR. "Economic uncertainty is no doubt holding back some potential demand, but what is desperately needed is more supply of moderately priced homes."
Home price gains had been moderating through much of the spring, but early indications are that the gains are strengthening again, likely thanks to lower mortgage rates.
The lack of affordable homes for sale is still the biggest headwind in the housing market. Supply is leanest on the low end, and that is where prices are surging most. There is more available for sale on the higher end, but buyers there are more sensitive to the latest volatility in the stock market.
"The drop in mortgage rates is certainly bringing homebuyers back. We are hearing that from our agents," said Daryl Fairweather, chief economist at Redfin, a real estate brokerage. "But there is a lot of uncertainty in the economy right now. People are worried about the recession. That's showing up in consumer sentiment data and might be holding back what would have been a larger surge in demand."
Regionally, July pending home sales in the Northeast fell 1.6% for the month and were 0.9% lower than a year ago. In the Midwest, sales dropped 2.5% monthly and 1.2% annually. In the South they were down 2.4% monthly but 0.1% higher than last July. In the West, pending sales declined 3.4% for the month but were up 0.3% annually.
Closed sales of existing homes in July, which are mostly contracts signed in May and June, rose a stronger-than-expected 2.5% for the month and were just slightly higher than July 2018. That was the first annual gain in over a year. Falling mortgage rates during that period likely helped get more buyers off the fence.