In October, pending home sales, a metric indicating signed contracts for existing homes, experienced a 1.5% decline from September.
This drop marked the lowest level since the inception of tracking by the National Association of Realtors in 2001, surpassing even readings observed during the financial crisis over a decade ago. Additionally, sales were down by 8.5% compared to October of the previous year.
As the index gauges signed contracts, it serves as the most recent indicator of housing demand, reflecting the activity of buyers in October. This period coincided with a brief surge in the popular 30-year fixed mortgage rate, exceeding 8%.
Although rates have since moderated to around 7.3%, according to Mortgage News Daily, realtors emphasize that the decline in housing activity is not solely attributable to high rates but is also a consequence of persistently low housing inventory.
Lawrence Yun, the chief economist for the NAR, highlighted the impact of limited housing supply on housing demand, noting that recent declines in mortgage rates may qualify more homebuyers, but the shortage of homes for sale continues to restrain activity. Yun mentioned the prevalence of multiple offers, where only one emerges as the winner, leaving the rest of the buyers to continue their search.
Pending Home Sales Still Experiencing Inventory Issues
According to Yun, home sales are experiencing an uptick in areas with increased inventory.
“Properties priced above $750,000 saw higher sales compared to the previous year due to a greater availability of inventory in this price range compared to October last year,” he noted.
The average rate for a 30-year fixed-rate mortgage reached nearly 8% in October, impacting the market significantly. Completed sales of existing homes and new construction homes, both reliant on contract signings, witnessed declines during the same month.
Despite a year-over-year decrease in pending home sales, the demand for new construction homes surged as buyers continued shifting towards this option amid a historically low supply of existing homes.
Hannah Jones, a senior economic research analyst at Realtor.com, stated, “While existing home inventory remained limited, especially with the rise in mortgage rates in October, the increase in new construction activity provides hope for additional home supply in the pipeline.”
October’s pending home sales figures indicate that home sales activity is likely to persist at a modest level in the coming months, with constrained options and notable affordability challenges weighing on buyers.
In October, existing home sales reached their lowest point in 13 years, remaining below 4 million for the first time since October 2010. Although existing home sales for the year are projected to finish significantly lower than in 2022, potentially marking the fewest homes sold since 1993, economists anticipate a shift in the market in 2024.
Jones anticipates that buyers will continue to grapple with affordability challenges, but slightly lower prices and easing mortgage rates will likely result in existing home sales remaining relatively stable in 2024 compared to the previous year. Overall, 2024 is expected to bring modest gains in affordability as the market progresses toward more favorable conditions.
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