Homebuyer Contracts Plunge as Interest Rates and House Prices Rise

A home for sale and
AFP, Getty Images

WASHINGTON -- The number of Americans who signed contracts to buy existing homes fell in September to the lowest level in nine months. The decline reflects higher mortgage rates and home prices that have made purchases more costly.

The National Association of Realtors said Monday that its seasonally adjusted pending home sales index dropped 5.6 percent last month from August to a reading of 101.6. That also pushed the index below its year-ago level, the first time that's happened in nearly 2½ years.

There is generally a one- to two-month lag between a signed contract and a completed sale. The drop suggests final sales will decline in the coming months.

Contracts to buy homes have slowed in recent months as mortgage rates reached a two-year high over the summer. Rates rose in response to speculation that the Federal Reserve would reduce its stimulus later this year.

But the Fed held off taking any action during its meeting in mid-September and rates have fallen since then. The decline could help boost contract signings in October. The average rate for a 30-year mortgage was 4.13 percent last week, according to mortgage buyer Freddie Mac.

Many economists say the housing recovery should continue, albeit with slower gains in home sales. They note that home prices and mortgage rates remain low by historical standards.

Monday's report "is in line with other housing indicators ... that suggest the pace of improvement in housing markets has slowed," Cooper Howes, an economist at Barclays Capital, said in a note to clients.

Home prices have also jumped 12.4 percent in August compared with a year earlier, according to real estate data provider CoreLogic. That's near the fastest pace in seven years.

Last week, the Realtors' group said final sales of existing homes fell 1.9 percent last month to a seasonally adjusted annual rate of 5.29 million in September. That's down from a pace of 5.39 million in August, which was revised lower. The sales pace in August equaled July's pace. Both were the highest in four years and are consistent with a healthy market.

The September decline in pending home sales was reported a day before the Fed begins a two-day policy meeting. Fed policymakers are unlikely to reduce their efforts to stimulate the economy, which includes $85-billion-a-month in bond purchases. Those purchases are intended to lower longer-term interest rates and spur more borrowing and spending.

Fed Chairman Ben Bernanke had suggested in late May that the Fed might slow the bond-buying program by the end of the year. But in September, the Fed held off after expressing concerns that rising mortgage rates were slowing economic growth.

The impact of the 16-day partial government shutdown is likely slowing growth in the final three months of the year. As a result, many economists expect the Fed will continue its current level of bond-buying until next year.

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Tom Harrell

Let\'s have another BUBBLE ! ! ---------------It seems there\'s Always a Housing BUBBLE right before every \"Ession\"-----------------------We had one before the Great Depr-ession and before the Great Recc-ession.-----------We can call the Next one the Great ReGr-ession.

October 29 2013 at 5:24 AM Report abuse rate up rate down Reply

Into the toilet?

October 28 2013 at 10:00 PM Report abuse -3 rate up rate down Reply

In California, if you buy a house for 600 thousand, you faced with 6000 dollars a year in
property tax. Forever. If you bought that same house 30 years ago, your taxes are less
then a 1000 dollars, because of prob 13

October 28 2013 at 9:19 PM Report abuse rate up rate down Reply
1 reply to bigwave48's comment

That ism pretty reasonable compared to many parts of the midwest (where wages are lower). These are some of my rentals but $300K house taxed at $9,000/year, $490K taxed at $12,000/year, etc Just glad the tenants pay it. Our governments (fed, county, state, city) have all gotten out of hand of spending tax payers money and not being accountable. Time for a revolution!!!

October 28 2013 at 10:27 PM Report abuse rate up rate down Reply

Yup bring back the old bilevel or raised ranch homes. People are crazy and want 5 bedrooms and 3 baths with no kids. Granite toilet seats and stainless steel sidewalks. People are just plain stupid. Just watch HGTV. Every woman wants everything ! some of the men are just as stupid.

October 28 2013 at 8:05 PM Report abuse +2 rate up rate down Reply
1 reply to SPQR's comment

Some of the men SOME???? We've all been crazy since time immemorial.

October 28 2013 at 10:25 PM Report abuse rate up rate down Reply

Houses are to big, to expensive and to much to maintain. The money people have theirs now the working class can't afford them.

October 28 2013 at 7:33 PM Report abuse -1 rate up rate down Reply

Why don't you write an article about the type of person buying homes today. My guess you will find it is people with tons of cash buying someones foreclosed house at 1/2 of the going price the house is worth. The average person living pay check to pay check would have a hard time making it. Greed wins again.

October 28 2013 at 5:52 PM Report abuse -1 rate up rate down Reply
1 reply to fredfrigger's comment

Gred, as in buying more house than you know you can.afford?

October 28 2013 at 10:41 PM Report abuse rate up rate down Reply

They will never get it greed is the means to our end. GW gave these bankers investors a taste of wealth beyond imagination and they cant let go.. sales pick up in and they are right there frothing at the mouth to cash in... We the people can not afford the stupid prices they are charging not only for interest but the home as well.. There is no boom folks get it out of your heads and we will pull out of this but for gods sake stop trying to cash in on something that is a ghost.

October 28 2013 at 3:58 PM Report abuse -1 rate up rate down Reply
3 replies to maloontransllc's comment

How can home prices and interest rates go up in such a terrible job market. If home prices come down then interest rates go up. If home prices go up then interest rates go down. To much greed going on right now. Once the country defaults and the dust settles everything will be allright.

October 28 2013 at 1:21 PM Report abuse +1 rate up rate down Reply
1 reply to armandohunter's comment

From what I understand the homes are being bought by consortiums of investor and renting out the properties. I was going to try it but I am to old and happy.

October 28 2013 at 10:50 PM Report abuse -1 rate up rate down Reply