Will there be any lasting effects from increased home sales? Lawrence Yun, the NAR’s general economist, weighs in on his housing forecasts through 2025 and the rest of the year.
In September, more home buyers signed contracts for a purchase, a confirmation that the housing market may be recovering from a slow summer.
The National Association of REALTORS ®’s Pending Home Sales Index, a prospective indicator of home sales based on contract signings, increased by 7.4% in September from August, according to NAR’s report on Wednesday. In addition, contract signings increased by 2.6% from the previous year.
According to NAR Chief Economist Lawrence Yun, “Contract signings increased across all regions of the country as buyers took advantage of the combination of lower mortgage rates in the middle of the summer and more inventory choices.” In the West last month, pending sales increased by nearly 10%, followed by a 6.7% increase in the Midwest, a 6.7% increase in the South, and a 6.5% increase in the Northeast. If the economy keeps adding jobs, inventory levels increase, and mortgage rates remain steady, Yun predicts, “further gains are anticipated. “
According to Yun, sales of newly constructed and previously owned homes could increase by 10% each of the next two years, considering the “sizable pent-up demand” that will likely emerge in the coming years. First, though, the housing market needs to break out of a rut: Potential home buyers are pulling back due to rising prices as existing home sales hit a 14-year reduction in September.
What’s Driving the Surge in Contract Signings?
More inventory options were discovered by home buyers in September, which may have contributed to a rise in pending home sales next month. Compared to a year ago, the housing inventory increased 23% in September, but that’s still down about 25% from pre-COVID levels, according to NAR.
The Federal Reserve cut its benchmark interest rate for the first time in four years due to the month’s increase in contract signings. Although the Fed’s rate is not directly related to mortgage rates, the cut initially sparked a market movement and helped lower mortgage rates to 6.18% in September( from 6.25% in August). Homebuyers may feel a slight urgency as a result of the lower rates. According to NAR’s data, the rate drop in September resulted in about a $300 savings in monthly mortgage payments on a typical $300,000 mortgage.
Freddie Mac reports that mortgage rates have increased in recent weeks: next week, the 30-year fixed-rate mortgage rate was 6.65% higher than that rate.
Will the Housing Market Momentum Continue?
Yun predicts that home sales will increase as home affordability increases. Here’s what he predicts for the housing market over the following two years:
- Higher home sales: “After two years of slow home sales in 2023 and 2024, existing-home sales are forecasted to rise”, Yun says. He predicts existing home sales will increase to 4.47 million in 2025 and more than 5 million in 2026.
- Slower home price appreciation: “During the next two years, expect a slower rate of growth in home prices that are almost in line with the consumer price index because of extra supply reaching the market,” he adds. Yun predicts the median sale price for existing homes to increase to$ 410, 700 in 2025 and $420,000 in 2026. Nonetheless, the pace of home price hikes is slowing, he says.
- Falling mortgage rates: More helping home affordability, Yun also predicts that the 30-year fixed-rate mortgage will decrease to 5.9% in 2025. However, he says mortgage rates possibly will increase to a 6.1% average by 2026.
