For the third straight month, pending home sales in the US surprised to the upside, underscoring just how sensitive pent-up demand is to lower rates, even if “lower” still looks high by the (low) standards of the past 10 years.

Contract activity rose 0.8% in February, the NAR said Wednesday. Consensus expected a 3% drop. By region, only the West notched a decline.

Those of you following along will recall that pending home sales surged in January by the most since June of 2020.

Pending sales are, of course, a leading indicator. Existing home sales tend to rise on a one- or two-month delay following marked increases in contract activity. Sure enough, sales of existing homes jumped in February by a dramatic 14.5%.

NAR Chief Economist Lawrence Yun all but called time on America’s housing recession. “After nearly a year, the housing sector’s contraction is coming to an end,” he said Wednesday. Existing home sales, new construction and contracts have all “turned the corner.”

Earlier, the MBA said mortgage applications and refi activity increased over the last week, as the 30-year fixed fell to the lowest in over a month. At 6.45%, rates are still more than 1.5pp higher than this time last year, but as the MBA’s Joel Kan was quick to point out, homebuyers are responsive to any decline, and it helps that price growth “has slowed markedly in many parts of the country.”

Of course, as discussed at length here on Tuesday, price growth is still robust in some areas. The NAR’s Yun underscored as much. “The affordable US regions — the Midwest and South — are leading the recovery,” he said.

Kan sounded as optimistic as Yun. The rise in purchase applications and evidence of a pickup in sales are “welcome developments.”

Obviously, pending home sales are still down sharply YoY, as is the MBA’s purchase index. And, as ever, it’s unclear whether the end of the US housing recession (if that’s what it is) should be greeted with open arms.

On one hand, residential fixed investment has been a drag on GDP growth for seven straight quarters. That’s totally untenable. It has to stop. In that respect, recent data does indeed constitute a “welcome development,” as Kan put it.

On the other hand, the Fed really can’t afford another housing frenzy. America has an acute inventory problem, and new construction can’t possibly fill the void. So, if demand turns voracious again, the trajectory for prices could inflect, jeopardizing the lagged disinflationary impulse from the housing sector and, just as importantly, rekindling another key “wealth effect” channel which had just recently gone into reverse.

The value of real estate in America notched its first quarterly decline since 2012 in Q4.

Revisions accompanying last quarter’s household wealth data suggested there were three quarters over the pandemic boom period during which property values in the US rose by $2 trillion or more+. Four if you round up.

That’s tantamount to minting millionaires, and although I have no way to quantify this, I’d suggest it had at least as much to do with the inflationary demand overshoot as the stimulus checks.