NAR Explains How Pending Home Sales Track Closings Despite High Mortgage Rates
The National Association of Realtors reports that pending home sales fell 7.3% in September, marking the steepest monthly decline of the year and underscoring the pressure high mortgage rates exert on buyer activity. By the numbers, the Pending Home Sales Index dropped 11.3% from a year earlier, with all four major U.S. regions posting year-over-year declines. Lawrence Yun, NAR’s chief economist, stated that housing affordability is more sensitive to mortgage-rate shifts than to job growth, noting that buyers and sellers are holding back until rates move favorably.
How the Index Works
The Pending Home Sales Index serves as a leading indicator for the housing sector, based on contract signings of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed. The index is based on a sample that covers about 40% of multiple listing service data each month. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months. Completed sales typically follow pending contracts within one to two months, though variations in closing times can occur due to financing or appraisal issues.
The Rate Effect
High mortgage rates are the primary driver behind the September downturn. The 30-year fixed-rate mortgage averaged 7.4% for the week ending Oct. 15, 2026. On a $300,000 mortgage, a 7.4% rate translates to about $2,077 per month in principal and interest, compared with about $1,851 at a 6.27% average rate from a year ago—a difference of about $226 per month. NAR Chief Economist Dr. Lawrence Yun stated that housing affordability is more affected by changes in mortgage rates than job growth. Yun added that despite the difficulty of obtaining a mortgage, the limited number of distressed properties is ensuring steady home prices. Buyers and sellers may simply be holding back until mortgage rates move favorably for the fall season.
Regional and Historical Context
Month-over-month pending home sales declined in all four major U.S. regions in September 2026, with the West posting the largest decrease, followed by the South, Midwest and Northeast. Year-over-year pending home sales also declined in all four regions. The index’s historical correlation with closed sales suggests that the steep September decline signals reduced closing volumes in the autumn months. Strong home equity may give sellers more flexibility, as the median existing-home price reached $417,500 in September, up 1.3% from a year earlier and the highest September median on record. Foreclosures and short sales accounted for just 2% of existing-home sales in September, unchanged from a year earlier, according to NAR.
Outlook
Economists suggest buyers may hold back until rates move favorably for the fall season. Yun stated that he considers rates in the 7% range to be the new norm, at least for the foreseeable future, pointing to current economic readings. While prospective buyers may be feeling squeezed by affordability challenges, sellers may be in a stronger position because of the equity they’ve built. The rapid run-up in mortgage rates over the last month may be nearing the end, though increasing energy prices and the resulting inflationary pressure are highly uncertain.
The Index Sample and Historical Correlation
The Pending Home Sales Index relies on a specific data sample to generate its monthly readings. According to NAR, the index is based on a sample that covers about 40% of multiple listing service data each month. This representative subset allows the organization to track contract signings across the broader market. In developing the model for the index, NAR demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months. This historical correlation suggests that pending contract activity serves as a reliable predictor of future closed sales, though variations in closing times can occur due to financing or appraisal issues.
Regional data further illustrates the index’s reach and consistency. In September 2026, month-over-month pending home sales declined in all four major U.S. regions. The West posted the largest decrease, followed by the South, Midwest, and Northeast. Year-over-year pending home sales also declined in all four regions. This widespread decline across geographic areas underscores the broad impact of current market conditions on contract signings, reinforcing the index’s role as a comprehensive leading indicator for the housing sector.
Market Dynamics and Distressed Property Trends
The September market landscape reveals a distinct divergence between buyer hesitation and seller resilience, driven largely by the disparity in equity positions. While prospective buyers feel squeezed by affordability challenges resulting from high borrowing costs, sellers maintain a stronger negotiating position due to the substantial equity they have accumulated over time. This dynamic allows sellers more flexibility to adjust asking prices or offer concessions without fear of flooding the market with distressed inventory.
Consequently, the supply of foreclosures and short sales remains negligible in this environment. According to NAR data, these distressed properties accounted for just 2% of existing-home sales in September, a figure unchanged from the previous year. This scarcity ensures that home prices remain steady despite the difficulty buyers face in obtaining mortgages. Dr. Lawrence Yun noted that even with the current hurdles to financing, the limited number of distressed properties acts as a stabilizing force for valuations across the nation.
Looking ahead, the outlook suggests that the rapid increase in mortgage rates over recent months may be nearing its peak. Yun indicated that rates in the 7% range are likely the new norm for the foreseeable future, citing current economic readings to support this view. However, significant uncertainty persists regarding increasing energy prices and the resulting inflationary pressures, which could further influence market conditions. As buyers and sellers hold back until mortgage rates move favorably, the interplay between these macroeconomic factors will continue to shape the housing sector’s trajectory.
Sources
- National Association of Realtors
- Pending Home Sales Decreased 7.3% in September
- Fewer Buyers Go Under Contract as Mortgage Rates Remain High
Photo: Jim Evans (CC BY-SA 4.0)
