Pending Home Sales Rose in February Before Iran War Sent Mortgage Rates Higher

Pending home sales rose in February as mortgage rates hit a three-year low, before the Iran war caused an oil shock that sent mortgage rates sharply higher.

Contract signings were up 1.8% last month compared to January but declined 0.8% from a year earlier, the National Association of Realtors® reported Tuesday.

“The slight gain in pending contracts appears to be driven by improved affordability conditions," says NAR Chief Economist Lawrence Yun. "However, those conditions could reverse if higher oil prices lead to an uptick in mortgage rates."

After reaching a three-year low of 5.98% in late February, average mortgage rates have been marching higher, hitting 6.11% last week, according to Freddie Mac. It comes as bond markets react to soaring oil prices, which threaten to reignite inflation and force the Federal Reserve to raise rates.

Those trends could derail the spring housing market, which, until the war began, had been shaping up positively for prospective buyers, with lower rates, softening prices, and higher inventory.

Pending home sales for February, which typically translate into March or April closings, showed contract signings rose month over month in every region except for the Northeast.

“The Midwest—the most affordable region of the country—was the strongest performer in February," says Yun. "But the Northeast was held back by a combination of higher home prices and a shortage of supply.”

Now, as the spring housing season enters full swing, it remains to be seen whether the Iran war will put a dent in demand, as buyers react to soaring gas prices and rising economic uncertainty.

“For first-time homebuyers, purchasing a home is not a snap decision,” Yun says. “It takes time to build credit, save for a down payment, and fulfill existing rental lease agreements. Still, there is sizable pent-up demand that could be released into the market."

Yun notes that although job gains have been sluggish in recent months, there are still 6 million more jobs in the country than in the pre-COVID period, which should represent an expanded pool of buyers.

Realtor.com® Senior Economic Research Analyst Hannah Jones says that while the "lock-in effect" of higher mortgage rates was beginning to thaw for some sellers, the market's overall trajectory will depend on how quickly economic disruptions are resolved.

"Zooming out, the spring housing market could face headwinds as broader economic uncertainties, ranging from the conflict in the Middle East and inflation to shifting tariff policies, threaten to keep mortgage rates and construction costs elevated," she says. "These factors may complicate the recent progress and further tighten the market just as the buying season hits its stride."