{"id":178446,"date":"2024-10-18T14:47:57","date_gmt":"2024-10-18T20:47:57","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=178446"},"modified":"2024-10-18T15:05:02","modified_gmt":"2024-10-18T21:05:02","slug":"pending-home-sales-post-biggest-spike-since-2021","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/pending-home-sales-post-biggest-spike-since-2021","title":{"rendered":"Pending Home Sales Post Biggest Gain in Three Years\u2014Have We Turned a Corner?"},"content":{"rendered":"\n

Is the U.S. housing market finally emerging from the pandemic Ice Age-like conditions? There are signs that this may be the case. According to a recent <\/span>report by Redfin<\/span><\/a>, pending home sales in early October showed the <\/span>biggest<\/span> year-over-year increase since 2021, increasing 2% during <\/span>the four-week period<\/span> ending Oct. 6.<\/span><\/p>\n\n\n\n

\"Pending
Pending Sales Year-Over-Year (2021-2024) – Redfin<\/a><\/em><\/figcaption><\/figure>\n\n\n\n

These numbers will <\/span>be encouraging to<\/span> real estate investors who have felt\u2014justifiably\u2014that opportunities have been thin for the past couple of years. Nevertheless, it pays to be thorough and not misinterpret a single metric as a sign of a <\/span>wider<\/span> trend. <\/span><\/p>\n\n\n\n

Can we definitively say that the housing market is returning to its healthy pre-pandemic state at this point? Let\u2019s take a look at<\/span> the different factors at play.<\/span> <\/span><\/p>\n\n\n\n

Interest Rate Cuts: Key Factor or a Red Herring?<\/span><\/h2>\n\n\n\n

Redfin\u2019s report explicitly ties the spike in home sales to <\/span>the Federal Reserve\u2019s much-anticipated rate cut announcement on Sept. 18<\/span><\/a>. Buyers finally \u201ccame out of the woodwork in late September\u201d following the announcement, \u201ceven though mortgage rates had already been declining for several weeks in anticipation of the cut,\u201d according to Redfin\u2019s press release about the report. <\/span><\/p>\n\n\n\n

This \u2018\u2018even though\u2019\u2019 is a significant one. It\u2019s not as if prospective homebuyers were unaware of interest rates declining before the announcement; it does seem that they needed it on a psychological level, though. Partly, this has to do with the fact that it\u2019s hard to let go mentally of the idea of 3% to 4% interest rates enjoyed by buyers pre-2022. <\/span><\/p>\n\n\n\n

Any announcement of a rate cut <\/span>has the necessary effect of convincing<\/span> some people that now is finally<\/span> a better time to buy a house than, say, a month or so ago.<\/span> In a volatile mortgage market, official announcements do hold sway. <\/span><\/p>\n\n\n\n

However, mortgage rates are always only part of the story of how a housing market is performing. Investopedia, for example, identifies it as just one of the <\/span>four key factors<\/span><\/a> that drive the real estate market. The other three are demographics, the economy, and government policies and subsidies. <\/span><\/p>\n\n\n\n

We have many examples of demographics driving <\/span>huge<\/span> changes within U.S. real estate markets throughout the pandemic era. <\/span>Huge<\/span> movements of people, like the much-documented <\/span>Sunbelt surge<\/span><\/a>, saw real estate in cities like <\/span>Phoenix<\/span><\/a> and <\/span>Austin, Texas<\/span><\/a>, boom and <\/span>then<\/span> become unaffordable <\/span>thereafter<\/span>.<\/span><\/p>\n\n\n\n

Demographics are about age, too, and without a doubt, pent-up demand among the so-called millennial generation is still the driving force behind the current uptick in home purchases. Millennials longing to buy their first homes and settle down didn\u2019t go anywhere during the past four years\u2014in many cases, there simply weren\u2019t homes there for them to buy. <\/span><\/p>\n\n\n\n

Inventory Growth Signals Recovery in Several Regions<\/span><\/h2>\n\n\n\n

This brings us to the next major factor <\/span>that is<\/span> helping to stabilize the housing market: the steady increase <\/span>of<\/span> inventory over the past year. The lack of available homes for sale severely impacted the U.S. housing market since the beginning of the pandemic.<\/span> <\/span><\/p>\n\n\n\n

First, sellers weren\u2019t selling because of COVID restrictions. <\/span>Then <\/span>it was because<\/span> the increases in mortgage rates post-2022 made selling seem unpalatable for many.<\/span> <\/span><\/p>\n\n\n\n

We\u2019re saying \u201cunpalatable\u201d rather than \u201cunaffordable\u201d for a reason. <\/span>While some sellers, especially those looking to upsize, would indeed have found themselves in no position to sell and take on a much more expensive mortgage, others <\/span>simply<\/span> were in no immediate rush to sell and bided their time for as long as <\/span>they could<\/span>.<\/span> <\/span><\/p>\n\n\n\n

This is still true, to an extent: According to the latest <\/span>Realtor.com Housing Market Trends Report<\/span><\/a>, inventory nationwide \u201cis still down 23.2% compared with typical 2017 to 2019 levels.\u201d The \u201crate-lock hurdle\u201d (sellers put off by high interest rates) \u201chasn\u2019t disappeared,\u201d says the report. <\/span><\/p>\n\n\n\n

Still, the trend has been shifting steadily since last year\u2014note that this was <\/span>the time<\/span> when interest rates were well above 7%. According to the Redfin report, new listings increased 5.7% year over year in the four weeks ending Oct. 6, but \u201cunlike the increase in pending sales, that\u2019s a continuation of a trend; new listings have been increasing for nearly a year.\u201d<\/span><\/p>\n\n\n\n

As of September 2024, <\/span>seven states<\/span><\/a> have actually returned to pre-pandemic inventory levels, according to ResiClub\u2019s analysis of Realtor.com data. Below is the growth of inventory compared to levels in September 2019<\/span>.<\/p>\n\n\n\n