Pending Home Sales Remain Flat, and That’s Positive

In September, the number of pending home sales remained flat compared to a year ago, marking the first time since January that sales did not decline, according to a report from Redfin. This stability suggests the housing market may be turning a corner, with pending sales increasing year over year in 27 of the 50 largest U.S. metropolitan areas. Redfin attributes this uptick to a comparison with last year, when sales slumped due to rising mortgage rates. Additional indicators like home tours and mortgage-rate locks are also on the rise.

Cities like Phoenix, San Jose, and Portland saw the biggest jumps in pending sales. In contrast, Florida cities, including West Palm Beach, Fort Lauderdale, and Miami, experienced the most significant declines, primarily due to natural disasters and rising insurance and HOA fees. Lower mortgage rates have been credited for the rise in pending sales, despite a slight increase in rates recently. Redfin’s homebuyer demand index, which tracks buyer activity, was up 9% in September, and mortgage applications rose 10% monthly.

Homebuyers Face Challenges with Mixed Data, Rising Loan Rates

The Producer Price Index (PPI) remained flat in September, bringing some relief to the housing market amid recent negative economic news. While food prices rose by 1%, energy prices fell by 2.7%, and the overall price of goods dropped by 0.2%. However, a 0.2% rise in service prices, led by a 0.3% increase in transportation and warehousing costs, offset this drop. In total, the year-over-year price change for goods and services was 1.8%. This moderate data was welcomed by housing economists, especially after a recent Consumer Price Index (CPI) report showed unexpected inflation growth.

Despite this, rising mortgage rates continue to challenge affordability. Freddie Mac reported a 20-basis-point increase in the 30-year fixed mortgage rate, reaching 6.32%. This hike followed stronger-than-expected job growth in September. Sam Khater, Freddie Mac’s chief economist, noted that the rate increase reflects changing expectations, not necessarily a weakening economy. With these higher rates, homebuyers now face steeper monthly mortgage payments, especially for those making smaller down payments. First-time buyers, in particular, are feeling the pressure, as rising rates have contributed to a decline in mortgage applications.

Housing Costs Put Increasing Pressure on Middle-Class Homeowners

The percentage of middle-class Americans facing high housing costs has more than doubled over the past decade. In 2022, nearly 30% of middle-class homeowners spent more than 30% of their income on housing, a significant increase from 2013. This financial burden limits families’ ability to cover basic needs like groceries and emergencies, making it harder for them to improve their economic situations. Traditionally, earning a median income allowed families to afford a median-priced home, but that is no longer the case, according to housing experts.

One example is the Williams family from Elkhart, Indiana, who bought a home in December 2023 for $265,000 with a mortgage rate of 8.125%. Despite understanding the financial challenges, they felt compelled to move from their rental with issues. Their experience reflects a broader trend: over 30% of U.S. counties now place average-income buyers in cost-burdened territory when purchasing a median-priced home. This shift has caused middle-class families to drop from nearly 60% of new homebuyers in 2010 to about 49.7% in 2022, driven by rising home prices, property taxes, and insurance costs, all compounded by high interest rates.