Pending home sales continued their volatile up-and-down swing pattern in February, rising a modest 2% after falling 4.6% for the month of January. In spite of data that indicates sluggish activity in the historical context, the Midwest and Southern regions saw gains in pending home sales activity.
The Midwest index for pendings graded slightly upward (0.7%) on a monthly basis, while experiencing a 4.7% year-over-year decline. Following a similar pattern, the Southern index increased 6.2% on a monthly basis, while declining 3.4% year-over-year.
The Western index shrunk 3% while also decreasing 3.5% on a yearly basis. The Northeast experienced a 0.9% monthly decline from January along with a 2.5% decline year-over-year.
The Pending Home Sales Index (PHSI)—a forward-looking index of home sales based on contract signings—fell 3.6% year-over-year in the aggregate. Last year’s cyclical low point occurred in the month of July amidst what is typically a strong time of year for home sales overall.
The readings continue a recent pattern of volatility for pending sales, as the year starts with another down and up cycle following a series of swings last year. Last January the index dipped 4.9%, reversed course for two months before declining 7.7% in April, before bouncing back and forth until the low point in July. After the July low point, the PHSI increased four months straight until a 5.5% December fall leading into this year’s continued inconsistency.
When discussing pendings, National Association of REALTORS® (NAR) Chief Economist Lawrence Yun focused on the long term.
“Despite the modest monthly increase, contract signings remain well below normal historical levels,” said Yun. “A meaningful decline in mortgage rates would help both demand and supply—demand by boosting affordability, and supply by lessening the power of the mortgage rate lock-in effect.”
The continued persistence of high interest rates, coupled with economic uncertainty that has recently reared its ugly head, has given the market pause, according to Bright MLS Chief Economist Lisa Sturtevant.
“After hitting a near 30-year low in 2024, early signs suggest that 2025 could also be a sluggish year for the housing market,” she said. “A lack of inventory and high mortgage rates have been constraints on home sales activity, but in 2025, there is a new challenge—economic uncertainty. While inventory is expected to increase, and there is still a lot of pent-up demand, consumer anxiety and rising concerns about an economic downturn could hinder market activity.
“The outlook for slow market activity is not necessarily a foregone conclusion. Mortgage rates have fallen and could come down quickly if the economy slows. For some prospective buyers, the combination of lower rates and more inventory could be more important than economic uncertainty. It will take some time to see how the push and pull in the market will play out this spring.”
Although the economic news is less than rosy, there is hope that a rate cut could come later in the year and relieve some of the pressure. Cotality (formerly CoreLogic) Chief Economist Selma Hepp had much the same to say as Sturtevant in her statement, highlighting the pressure point of high mortgage rates and how they play a major factor in the housing market at large.
“Recent gains in home sales are naturally leading us into the spring home-buying season. But, we are seeing more homesellers having to reduce their prices in order to generate interest from tepid homebuyers who are weighted down by sustained high interest rates, overall high home values, as well general economic uncertainties,” Hepp said. “A further interest rate cut would help keep the momentum going, but we don’t expect another rate reduction until much later in the year. In general, keeping mortgage rates from jumping back up is critical in ensuring the spring home-buying momentum continues.”
This paints a somewhat lukewarm picture for what is typically the hottest time of the year to buy a home: spring season. Increased economic uncertainty may serve as a counterweight to what had been predicted by some to be a “buying frenzy.”
Realtor.com® Senior Economic Research Analyst Hannah Jones cautioned against that notion in a statement, predicting a mixture between sidelined homebuyers getting back into the game as rates fall and those opting to rent instead due to the persistence of those same rates.
“Pending home sales, or contract signings, measure the first formal step in the home sale transaction, namely, the point when a buyer and seller have agreed on the price and terms,” she noted. “Housing affordability remains the chief concern of many hopeful buyers, and any improvement in housing costs is met with an uptick in activity. As the weather and the housing market warm into the spring, mortgage rates have softened slightly, offering sidelined buyers the opportunity to get into the market. However, many households are still priced out, opting to take advantage of easing rents to minimize housing costs.”
