Insights 
VT 
US pending home sales declined by 0.4% in July, against an expected decrease of 0.1%. The prior month’s decline was 0.8%, and the pending home sales index stands at 71.7, slightly below June’s 72.0. Year-over-year figures show a 0.7% increase.
Regionally, home sales varied: the Northeast saw a decline of 0.6%, the Midwest dropped 4%, while the West and South experienced changes of +3.7% and -0.1% respectively. The REALTORS® Confidence Index survey indicates that 16% of NAR members foresee an uptick in buyer traffic, while 21% anticipate more seller activity.
Pending Home Sales Insights
Pending home sales are derived from signed contracts, with reports showing a 15% contract cancellation rate, reaching an all-time high. Despite improvements in mortgage rates and housing affordability, there remains buyer hesitancy, potentially due to making a significant financial commitment. Rising mortgage applications suggest more serious buyers, but many remain uncommitted.
The pending home sales index remains low, influenced by high interest rates, prices, and tight supply. After the post-Covid era of low mortgage rates, many homeowners have little motivation to move. President Trump aims to influence the Federal Reserve towards reducing rates, though the yield curve’s steepening poses challenges. The 10-year yield is at 4.23%, close to its 100-week moving average, which influences 30-year mortgage rates.
The latest housing data confirms what we’ve been seeing: the market is struggling. July’s pending home sales fell by 0.4%, which was worse than expected and continues a pattern of weakness from prior months. A record-high 15% of signed contracts are also being canceled, showing that even interested buyers are getting cold feet before closing.
Factors Influencing the Market
This puts all eyes on the Federal Reserve, as their interest rate policy is the main factor holding the market back. The 10-year Treasury yield, which heavily influences mortgage rates, is hovering at 4.23%, keeping borrowing costs high for potential homebuyers. We can see the market’s anticipation in the CME FedWatch Tool, which is currently pricing in a 68% probability of a rate cut by the November 2025 meeting.
Given the uncertainty between weak economic data and potential central bank action, we should position for increased volatility. Options on the iShares U.S. Home Construction ETF (ITB) are a direct way to play this, as its implied volatility has crept up to 31%, reflecting trader nervousness. This suggests strategies like straddles or strangles could be effective over the next several weeks.
We should also pay attention to the steepening yield curve, which signals the bond market is worried about future inflation, even if the Fed cuts rates. This could be due to concerns over proposed tariffs and their effect on prices. A pair trade, going long 10-year Treasury note futures while shorting 2-year Treasury note futures, is a way to trade this view.
Looking back, we remember the environment in 2021 when the average 30-year mortgage rate fell below 3%, creating a massive housing boom. The current situation is a direct consequence, as homeowners who locked in those low rates have no incentive to sell, creating a severe supply shortage. This structural issue means that even a few rate cuts from the Fed are unlikely to trigger a rapid recovery in sales activity.
