Housing News

The Impact of Lower Mortgage Rates: Home Sales Set to Rise After September Rate Retreat

If anyone ever doubted the impact of lower mortgage rates on the housing market, consider what happened in September.

Pending home sales, an indicator of future home sales based on contract signings, increased substantially in September, according to a new report from the National Association of Realtors (NAR).

The number of homes going under contract jumped by 7.4% from August to September, representing the biggest monthly increase in four years. In addition, September had the most homes going under contract since March. Contract signings were also up 2.6% compared to September of 2023.

The reason for the increase in pending sales was that mortgage rates fell precipitously in anticipation of the U.S. Federal Reserve cutting its interest rates for the first time in four years in September. When that happened, mortgage rates fell to a two-year low.

They averaged 6.08% for 30-year, fixed-rate loans in the week ending Sept. 26, according to Freddie Mac.

Those lower rates, down from a recent peak of 7.79% in the week ending Oct. 26, 2023, incentivized more buyers to jump back into the market.

“Contract signings rose across all regions of the country as buyers took advantage of the combination of lower mortgage rates in late summer and more inventory choices,” said NAR Chief Economist Lawrence Yun. “Further gains are expected if the economy continues to add jobs, inventory levels grow, and mortgage rates hold steady.”

The increase was most seen in the western part of the country, where pending home sales jumped by nearly 10% in September. That may be at least partially because homes are generally more expensive in that region. So, even small drops in mortgage rates can make a big difference in a buyer’s monthly payments.

Contract signings were up by 7.1% in the Midwest, 6.7% in the South, and 6.5% in the Northeast.

However, mortgage rates have risen in recent weeks averaging 6.54% in the week ending Oct. 24, according to Freddie Mac. That could lead some would-be homebuyers back to the sidelines as they wait for rates to come back down.