U.S. Pending Home Sales Drop 2.3% in July Amid High Mortgage Rates and Prices

The National Association of Realtors reported today that U.S. pending home sales for July fell 2.3% from June to the lowest level since January 2026, as buyers remain on the sidelines due to elevated mortgage rates and record-high home prices. The sharp decline in pending home sales across all regions indicates that contract signings for homes continue to be impacted by affordability challenges. Overall, pending home sales are down 2.2% from a year ago.

More importantly, regionally, pending sales dropped the most in the West with a 4.7% decrease from last month, and then South at 2.2% decrease followed by the same decrease of 2.0% in the Northeast. And finally, in the diametric opposite, the nation’s heartland (i.e. the Midwest) saw its pending sales contract actually increase by 0.7% and a whopping 1.7% on an annual basis. Not surprisingly, therefore, on an annual basis, the steepest decline in pending sales contract occurred in the West (i.e. 7.1% decrease) followed by the other three regions with the South and Northeast both decreasing by 3.8% respectively, and then the Northeast by 3.9%. In summary, although all four major regions are therefore experiencing the greatest weakness in housing market (i.e. pending sales contract) since January 2026, they are doing so in disparate ways and at very different rates of decline. Consequently, a investors therefore needs to focus on specific regions rather than look at the numbers on a national basis.

A record high in mortgage rates in mid-summer has lead to the lowest level of buyer activity according to Yun. However, Yun notes that houses are staying on the market longer than usual because fewer buyers are bidding above the listing price compared to last year. According to Yun, this is also due to the fact that there is a 5% increase in employment above pre-pandemic levels but pending contracts are still down 30% from 2019 levels and continue to sit in a state of limbo due to ‘affordability constraints’ and ‘high interest rates’.

Pent-up demand is sitting on the sidelines due to affordability constraints and high borrowing costs, even as improved payroll numbers would support higher housing demand. In the meantime, demand is likely to be kept at bay by current supply shortages and high prices, until there is enough relief in these areas to spur an increase in contract writing, which is already occurring in several major U.S. markets such as Virginia Beach and San Antonio that are experiencing healthy year-over-year increases in pending home sales.

While high home prices have led to high days on market for homes for sale in the U.S. until recently, sellers are beginning to come down in price. However, until mortgage rates decline to a reasonable level, housing sales will remain slow for a long period of time.

What This Means for Your Portfolio:

1. Watch for mortgage rate stabilization as this will unleash pent-up demand especially in areas that are rising year over year.
2. Focus on regional pockets of growth: Right now the Midwest is doing better than other parts of the country, and certain metro areas such as Virginia Beach and San Antonio are doing better than others on a year-over-year basis.
3. Monitor local inventory levels and days on market to better gauge any shifts in the market. Such information for key Dubai markets is now available via Dubai Land Department’s updated data portals for the portfolios of investors based in Dubai.
4. Generally, it is wise to avoid overpaying for real estate where houses are sitting on the market for extended periods of time and few to no bidding wars are taking place. This type of environment typically is marked by high asking prices and high interest rates that create a malaise for housing sales.

The Final Takeaway:

While employment is at 5% above pre-pandemic levels, it is unlikely to translate into higher sales anytime soon as houses are spending longer on the market. Demand is being kept at bay by high mortgage rates and prices. The turning point for sales is therefore likely to be determined by a combination of lower mortgage rates and supply being brought to market, rather than by economic growth alone.