Pending home sales metric hits 2023 high but many may fall out

Home seller acceptance of offers reached a peak for the calendar year on a seasonally adjusted basis last month, but many of the transactions could fail to close, Redfin reported Friday.

The seasonally adjusted, annual rate of pending sales based on Redfin's analysis of multiple listing service data was nearly 401,000, up 1% from the previous month and marking an 11-month high. The number was last this high a year ago, when it was near 421,000.

(Redfin releases its numbers for pending home sales ahead of a separate report on a similar metric by the National Association of Realtors. That report is due later this month.)

While Redfin's number is an optimistic reading for housing, it stands in contrast to what's been a declining number of completed sales, according to the real estate broker and mortgage originator. Closed sales were down 1.8% during the month and 12.5% from a year earlier.

"I'm seeing a lot of cold feet," Eric Auciello, Tampa sales manager at Redfin, said in the company's report, noting that the high home prices, insurance costs and rates have led to some sticker shock.

"When buyers see the final number, a lot of them are backing out," he said, noting that seller refusals to make repairs buyers want has also been a driver of fallout.

The question now is whether the recent decline in financing costs can encourage follow-through on sales during a traditionally weak time of the year, and build on some of the stronger indicators seen recently in the housing market.

"Compared to last year, buyer activity is generally higher and price direction is much stronger," said Barry Habib, founder and CEO, MBS Highway, an online provider of mortgage-backed securities and housing data.

"There's also real hope that the drop in U.S. Treasury yields and mortgage rates we've seen in the last few weeks will draw a line under transaction volumes," he added in comments the company included in its latest report.

MBS Highway's national housing index stood at 31 in November, compared to 35 the previous month and 13 a year ago. The index runs on a scale from 1 to 100, with values over 50 indicating expansion and amounts under that reflecting contraction.

One regional market that had had relatively healthy buyer activity experienced a dramatic decline, while others were either stable or wavered only slightly.

The index for the Northeast sank to 30 in November from 45 the previous month after being one of the most active markets with generally positive price trends for most of the year. 

There's been more downward pressure on prices in general, but the recent rate drop could change that trend, according to the MBS Highway report. The subindex that's indicative of price direction fell to 41 from 46 during the month but was up from 12 a year earlier.

In addition to rates, the availability of inventory will play a role in what prices do next. The latest round of building indicators from the Commerce Department released showed the numbers were surprisingly strong in October.

That stood in contrast to the fact that a construction sentiment reading on an index put out by the National Association of Home Builders and Wells Fargo fell to a one-year low on Thursday.

Smaller builders that can't offer the kind of buyer incentives larger players do likely accounted for the lower reading on that index, according to reports by First American and John Burns Research and Consulting.

"If mortgage rates remain below peak or head lower, builder sentiment may pick up in December," First American Deputy Chief Economist Odeta Kushi said in a report.