Pending U.S. home sales have dropped to a record low — even worse than during the 2008 financial crisis. Does this mean prices are coming down?

“During October, mortgage rates were at their highest, and contract signings for existing homes were at their lowest in more than 20 years,” said Lawrence Yun, NAR chief economist.

While there were some success stories — sales of properties priced above $750,000 increased, as did sales of newly built homes — total pending home sales dropped in all four U.S. regions compared to one year ago.

Supply and demand

Theoretically, the drop in sales could indicate reduced home-buying demand, which may eventually lead sellers to lower their prices to attract potential buyers. As demand declines and supply increases, negotiation power shifts in favor of prospective buyers — a so-called buyer’s market in which prices are forced downward.

But we’re not quite there yet. The median existing-home price for all housing types in October was $391,800, an increase of 3.4% from October 2022 ($378,800), according to NAR. This follows an eight-month stretch of consecutive house-price increases.

House prices jumped by 3.9% in September 2023, after a 2.6% jump in August, according to S&P CoreLogic’s latest Case-Shiller U.S. National Home Price NSA Index, released Nov. 28. Since January, prices have soared 6.6%, which is well above the median full-calendar-year increase across more than 35 years of data.

Why are house prices still so high?

There are several factors keeping prices painfully high. First and foremost, mortgage rates in the 7-8% range are pricing many prospective buyers out of the market because it is simply too expensive to borrow money for a home.

And there’s also the matter of available supply of homes.

“Limited housing inventory is significantly preventing housing demand from fully being satisfied,” said Yun. “Multiple offers, of course, yield only one winner, with the rest left to continue their search.”

Limited housing inventory is keeping house prices artificially high. The shortage is partly due to a decline in new construction — as well as pandemic-driven delays — which means housing supply has failed to keep pace with U.S. population growth and demand.

“Although this year’s increase in mortgage rates has surely suppressed the quantity of homes sold, the relative shortage of inventory for sale has been a solid support for prices,” said Craig J. Lazzara, managing director at S&P DJI — adding that “unless higher rates or exogenous events lead to general economic weakness,” house prices could remain high in the near future.