US pending home sales sink to their lowest since 2001

Aerial view of a suburban neighbourhood of detached houses lined up along curving streets — Suburban housing in north-eastern Colorado Springs (March 2008) — archive photo representing the US housing marketPhoto: David Shankbone / Wikimedia Commons · CC BY-SA 3.0 · resized · Source

Location: WASHINGTON

NAR data reported by HousingWire and Reuters show the index tracking signed home purchase contracts fell 7.3% in September to 66.0. That is the lowest reading since the series began in 2001; in August the index had edged up 0.3%. It was down 11.3% year on year and fell in all four regions. On Bloomberg's non-seasonally adjusted calculation the annual decline is close to 13%. The West took the sharpest monthly hit at 9.2%, the Northeast the mildest at 4.2%.

Financing costs drove the 7.3% drop. Freddie Mac puts the 30-year fixed mortgage rate at 7.40% in the week of 15 October, up from 6.27% a year earlier. Treasury data show the 10-year yield at 5.12% on 20 October and the 30-year at 5.42%. Because contracts typically close within one to two months, NAR expects existing home sales to fall in October and November as well.

The 66.0 print points in the same direction as Fed pricing. Market data cited by Rallies.ai put the probability of a hike of at least 25 basis points at the 27–28 October meeting at 17.2%, down from 22.1% a week earlier and 57.6% a month ago. Long-end rates pushed housing demand to the 66.0 floor without any change in the policy rate. HousingWire's weekly gauge tells the same story: new pending sales in the week to 16 October were down 13.1% on the year.

Talay assessment

Bottom line

Housing is where higher extended-maturity yields first bite into the real economy: a 7.40% mortgage rate has driven contracts to the bottom of the series. That makes it easier for the Fed to hold on 28 October and explains why hike odds collapsed from 57.6% to 17.2% in a month. If the slide carries into October and November closings, the case that markets are doing the tightening for the Fed gets stronger.

Likely effects

Fed decisionUncertainWeeks
The collapse in housing demand undercuts the case for a further hike despite energy-driven inflation; hike odds have fallen to 17.2%.
Housing and constructionNegative1–6 months
With contracts closing one to two months later, existing home sales and residential investment will show up as a drag on GDP in October and November.
Emerging market ratesPositive1–6 months
If slowing US growth pulls the 10-year yield below 5.12%, funding costs ease for external borrowers, Türkiye among them.

Possibilities, ranked

1
Flat at the bottom55%
Mortgage rates hold in a 7.2–7.6% band, the index moves between 65 and 70 and the Fed stays on hold.
Watch: Freddie Mac's weekly rate for 22 October and the 28 October FOMC decision
2
The slide deepens30%
The 30-year yield breaks above 5.5%, mortgage rates climb past 7.6% and the index sets a new low.
Watch: The October pending home sales index printing below 66.0
3
A quick rebound15%
Extended-maturity yields retreat, mortgage rates drop below 7% and deferred demand returns.
Watch: The 10-year yield falling below 4.8% and the annual decline in weekly contract data narrowing to under 5%

Probabilities are calibrated judgement based on the sources, not measurement, and are revised as new information arrives. Not investment advice.

Market reaction

Indicators affected

Pending home sales index▼ 66.0
Monthly change▼ −7.3%
30-year mortgage rate▲ 7.40%
US 10-year▼ 5.12%

Historical context