Pending home sales—a reliable leading indicator for existing home turnover with a one-to-two-month lead time—surged 3.3% in November, catapulting the index to its highest level since February 2023. This print is particularly impressive given that average mortgage rates actually drifted 10bp higher during the month, and it follows a robust, upwardly revised 2.4% gain in October. Although the year-over-year figure remains slightly underwater at -0.3%, the persistent retreat in mortgage rates since the mid-year peak has clearly acted as a catalyst for year-end activity. This sequential strength suggests that the “lock-in effect” is beginning to thaw, as buyers capitalize on the most favorable windows of affordability seen in several quarters.

Stepping back, however, it is important to contextualize this move: transaction volumes are still hovering at historically depressed levels. While the nearly 80bp decline in mortgage rates since mid-year fundamentally justifies an 8% boost in sales volume, realized activity has already climbed 9% since June. This suggests that the “rate-cut rally” may be largely priced in, leaving limited room for upside surprises in the upcoming report. Supporting this cautious view, weekly mortgage purchase applications have dipped 0.2% this month. More importantly, we see a growing divergence between intent and execution; purchase applications have ballooned nearly 20% over the last year, while actual pending sales remain essentially flat, indicating a significant “top-of-funnel” interest that isn’t successfully converting into closed contracts.

The NAR press release credited this uptick to the combination of softening rates, wage growth outstripping home price appreciation, and a modest expansion in inventory. While these tailwinds are real, we expect the recovery to remain gradual and “grind-y” rather than parabolic. Affordability remains the structural headwind of this cycle–despite the recent bounce, the NAR Affordability Index was still a staggering 36% below its pre-COVID baseline in October. With mortgage rates moving sideways since dipping below 6.3% in early November, the primary engine of growth has stalled. Furthermore, the cooling of median price growth—slowing to 1.2% year-over-year from October’s 2.0%—suggests that sellers are losing some of their previous pricing power as the market stabilizes.