The number of homes going under contract was a mixed bag across the country, with monthly gains in the Midwest and South and a slump in the higher-priced Northeast and West regions.

Nationwide, pending home sales rose a modest 1.6% in February from the prior month, according to data from the National Association of Realtors® Pending Home Sales Index released on Thursday. Annually, pending home sales transactions were down 7%.

There were more signed contracts in more affordable parts of the country. In the Midwest, where home prices are generally lower, pending sales surged 10.6% from January to February. Signings also ticked up 1.1% in the South on a monthly basis.

In the Northeast, pending transactions slumped 0.3% from January, while the pricey West saw a plunge of 6.5%. All of the regions experienced year-over-year declines.

“The high-cost regions in the Northeast and West experienced pullbacks due to affordability challenges,” NAR Chief Economist Lawrence Yun said in a statement. “Home prices rising faster than income growth is not healthy and adds challenges for first-time buyers.”

However, Yun projected that a recent surge in homebuilding will boost the number of homes on the market. This should give prospective buyers more options to choose from.

“Additionally, many sellers, who delayed listing in the past two years, will begin to put their homes on the market to move to a different home that better fits their new life circumstances—such as changes in family composition, jobs, commuting patterns and retirees wanting to be closer to their grandkids,” he said.

High mortgage rates and low affordability weigh on buyers

Mortgage rates jumped to an average of 6.94% in the last week of February, up from 6.63% a month earlier, according to Freddie Mac. Meanwhile, home prices remain at record highs, driving some potential buyers to the sidelines.

“Pending home sales remained low in February as climbing mortgage rates drove many would-be buyers to the sidelines,” Hannah Jones, senior economic analyst for Realtor.com®, said in a statement.

“Both new-home sales and pending home sales leveled off compared to December’s surge as mortgage rates picked up steam. However, the number of homes listed for $200,000 to $350,000 increased by 20.6% annually in February 2024, offering options for buyers hoping to secure a home despite climbing mortgage rates,” she added.

On an annual basis, pending home sales dropped in every region last month, according to NAR. Contract signings dropped 9% from a year ago in the Northeast, 8.5% in the South, 6.5% in the West, and 2.5% in the Midwest.

“After three years of unusual spring housing markets, we should not expect this one to necessarily feel ‘normal,’” Bright MLS Chief Economist Lisa Sturtevant said in a statement. The multiple listing service covers the mid-Atlantic region. “Home buyers have been resilient in the face of elevated mortgage rates and low inventory, but household savings rates are down and household debt is rising, making some individuals and families feel more cautious.”

New-home construction could help boost supply

Sturtevant noted that new listing activity is on the rise and new-home construction also remains strong, adding to the supply of homes for sale.

New-home construction starts jumped 10.7% in February from the prior month, according to the government’s monthly new residential construction report. Building permits, a sign of future construction, rose 1.9% in February,  reaching an annual pace of 1.52 million—the highest level seen since August, according to that report.

Meanwhile, many homebuilders are pivoting to smaller, more affordable homes and even offering price cuts to lure buyers discouraged by high mortgage rates.

The median sales price of a newly constructed home dropped 7.6% year over year in February, to $400,500, according to a report on Monday from the U.S. Census Bureau and the U.S. Department of Housing and Urban Development. This was the lowest median price since June 2021.

“Overall, active inventory grew 14.8% annually in February and prices remained relatively stable compared with the previous year as more affordable inventory made its way into the market,” said Jones. “Though the market saw nearly 40% fewer homes for sale in February compared with pre-pandemic, home shoppers enjoyed more homes for sale and more affordable options than one year prior, which could boost buyer activity despite still-elevated mortgage rates.”

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