The U.S. housing market showed a modest improvement in August as pending home sales ticked up, but the annual comparison and the market's initial response underscored the limited nature of the gain. The National Association of Realtors (NAR) reported that its Pending Home Sales Index rose 0.3% in August to 71.2, following a revised July reading. However, on a year-over-year basis, contract signings fell 4.7% compared to August 2025, indicating that the housing sector remains under pressure.
The data, released at 10:00 a.m. Eastern Time on Thursday, had a muted impact on homebuilder stocks. By 10:28 a.m., the iShares U.S. Home Construction ETF (Cboe: ITB) was trading at $89.04, while the SPDR S&P Homebuilders ETF (NYSE Arca: XHB) stood at $97.81, both roughly 1.0% above Wednesday's close. However, between 9:59 and 10:04, ITB lost about 0.3% and XHB slipped 0.4%, suggesting that the report did little to boost an already ongoing rally.
Regional Variations
The regional breakdown revealed a sharp divergence. Contract signings increased 3.0% in the West and 2.3% in the South, but declined 4.2% in the Northeast and 1.6% in the Midwest. All four regions remained below their year-earlier levels. NAR Chief Economist Lawrence Yun attributed the weakness in the Northeast and Midwest partly to faster home-price growth in those areas, while noting that national contract activity remains roughly 30% below pre-pandemic levels.
Leading Indicator
Pending contracts typically lead completed existing-home sales by one to two months, making the index a gauge of demand rather than a direct measure of builder revenue. The latest data does not signal a renewed contraction in housing, but it does indicate that the fractional monthly gain leaves turnover near a depressed base, offering little evidence of a robust recovery.
Supply Report Mixed
A separate supply report released earlier on Thursday painted a mixed picture. The Census Bureau estimated that total housing starts fell 2.6% in August to a seasonally adjusted annual rate of 1.275 million. However, single-family starts—a key indicator for large public builders—rose 7.6% to 918,000. On the other hand, single-family permits declined 1.8% to 878,000, suggesting that the near-term construction pipeline is softer than the starts figure alone implies.
Financing Remains a Constraint
Financing continues to be the primary constraint on the housing market. Freddie Mac's latest available weekly survey placed the average 30-year fixed mortgage rate at 6.76% as of September 10, up from 6.49% on July 9. While higher household income and slower price growth can improve purchasing power, the 27-basis-point increase in rates has raised the monthly payment on a new loan for contracts signed in August.
Implications for Homebuilders
For homebuilder investors, the key counterargument is that builders can use rate buydowns and incentives to capture market share from existing-home sellers, many of whom are reluctant to give up older, lower-rate mortgages. The rise in single-family starts supports this strategy. However, the risk is that incentives protect closings by squeezing margins, while the 4.7% annual drop in pending contracts suggests the broader pool of buyers is still shrinking.
Upcoming Data
The next tests for the housing market are concrete. The Census Bureau is scheduled to release August new-home sales data on September 24, which will provide a direct check on builder demand. Meanwhile, NAR has slated the September pending home sales report for October 20. A sustained turnaround would require more than just another small monthly increase; investors should look for a higher index, a narrowing annual decline, and permits that stop falling simultaneously.
