Highlights:

• Pending home sales fell 0.4% in July 2025, following a 0.8% decline in June.

• Regional disparities highlight strength in the West but weakness elsewhere.

• Economists point to affordability challenges and cautious buyer behavior.

Pending Home Sales Extend Decline, Raising Market Questions
Pending home sales in the United States slipped by 0.4% in July 2025, marking the second consecutive monthly decline and the first back-to-back contraction since January. The latest figures, released by the National Association of Realtors (NAR), follow a 0.8% drop in June and highlight the lingering uncertainty among homebuyers despite marginal improvements in borrowing costs and available inventory.

The data arrives at a time when market participants are closely monitoring whether housing demand will stabilize after years of volatility. Although mortgage rates have eased slightly and housing supply is gradually improving, affordability remains stretched, keeping many would-be buyers on the sidelines.

Regional Trends Reveal Uneven Market Performance
The national downturn masks significant regional divergences. Pending transactions fell 0.6% in the Northeast, 4.0% in the Midwest, and 0.1% in the South, underscoring persistent softness in several key housing markets. By contrast, the West posted a notable 3.7% increase, offering a glimpse of resilience in a region that has often led national housing cycles.

These discrepancies highlight how local economic conditions, employment dynamics, and demographic shifts shape demand differently across the country. In the Midwest, for example, higher mortgage costs weigh heavily on affordability given lower median household incomes. Meanwhile, the rebound in the West may reflect pent-up demand following significant price corrections in overheated urban markets.

Economic Insights and Buyer Psychology
According to Lawrence Yun, chief economist at the NAR, “Even with modest improvements in mortgage rates, housing affordability, and inventory, buyers still remain hesitant.” Yun emphasized that buying a home is typically the most significant financial commitment individuals make, requiring careful deliberation.

This cautious approach underscores a broader psychological trend in the housing market: prospective buyers are taking longer to commit, weighing financial stability against economic uncertainties such as inflation, interest rate policy, and job security. The deliberate pace reflects not only affordability challenges but also a desire to avoid overextending in a still-fragile economic environment.

Historical Context and Market Volatility
The July reading fits within a longer historical narrative of volatility in pending home sales. Since 2001, monthly changes have averaged nearly flat at -0.01%, but extreme swings remain common. Sales surged by an unprecedented 40.5% in May 2020 during the pandemic housing boom, while May 2010 marked a record decline of -30.3% following the expiration of tax incentives. Against this backdrop, the current contraction, though modest, signals that buyers remain cautious even as broader conditions gradually improve.

Looking Ahead: Risks and Opportunities in Housing Demand
As the housing market moves into the latter half of 2025, the trajectory of pending home sales will hinge on several factors: the pace of mortgage rate adjustments, the evolution of inventory levels, and household confidence in economic stability. Should borrowing costs stabilize and wage growth continue, demand could reemerge more strongly in the fall. However, if affordability pressures persist or economic uncertainty deepens, further weakness in pending transactions is likely. For now, the housing market remains at a crossroads, shaped as much by psychology and caution as by fundamental supply-and-demand dynamics.