US pending home sales fell by 0.8% year on year in February. This was down from a 0.4% fall in the previous period.
The data points to weaker activity in the pipeline for home purchases compared with a year earlier. Pending home sales track signed contracts, not completed sales.
The continued slide in year-over-year pending home sales, now at -0.8%, signals that demand is softening further as we enter the spring season. This weakening trend suggests that elevated mortgage rates are capping buyer activity more than previously thought. We should anticipate this softness to translate into weaker existing home sales figures in the coming months.
This data increases the probability that the Federal Reserve will hold rates steady at its next meeting, as it points to a cooling economy. Looking at interest rate futures, the market is now pricing in a slightly greater chance of a rate cut by the third quarter of this year, a shift from just last week. We should consider positioning for a flatter yield curve, as long-term growth expectations may decline.
For equity derivatives, we see this as a bearish indicator for homebuilder ETFs like ITB and XHB, which were highly sensitive to rate fluctuations throughout 2025. Buying put options on these sectors or on major home improvement retailers could be a prudent hedge against a further downturn in housing activity. Recent earnings from these companies have already highlighted concerns over consumer affordability, with this data confirming the trend.
The weakness in housing, a key pillar of the economy, introduces broader market uncertainty, which we can see in the VIX ticking up slightly to 16.5 this morning. This environment makes protective put strategies on the S&P 500 more attractive, especially as a hedge against any spillover effect into consumer spending. A slowing housing market historically precedes a slowdown in discretionary purchases.
This data is set against a backdrop of 30-year fixed mortgage rates that have stubbornly remained above 6.3%, according to the latest Freddie Mac survey. This affordability crunch is the primary driver behind the slowdown and reinforces our view that housing-related assets are vulnerable. We should monitor weekly mortgage application data closely for any signs of a reversal or further deterioration.
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