In a stark indication of the challenges faced by potential homebuyers, pending home sales plummeted in October to their lowest level since at least 2001, according to a report released on Thursday by the National Association of Realtors (NAR). The dip was attributed to the month’s elevated mortgage rates and weakened affordability, discouraging many from entering the housing market.
The NAR’s Pending Home Sales Index revealed that contracts to purchase existing homes dropped by 1.5% in October, sliding from a revised 72.5 the previous month to 71.4. This marks the lowest point since the inception of the index more than two decades ago.
Economists, anticipating the impact of higher mortgage rates, had predicted a decline of 2.0%. Lawrence Yun, the NAR’s chief economist, commented on the situation, stating, “During October, mortgage rates were at their highest, and contract signings for existing homes were at their lowest in more than 20 years.”
Yun also noted that recent declines in mortgage rates could potentially benefit home buyers, but the persistent issue of limited housing inventory remains a significant obstacle to satisfying housing demand. He added, “Multiple offers, of course, yield only one winner, with the rest left to continue their search.”
Geographically, the decline in contracts for existing homes was most pronounced in the West and South on a monthly basis. However, the Northeast bucked the trend, experiencing a 2.7% increase in signed contracts, making it the only region to witness a month-over-month rise.
On an annual basis, pending home sales recorded an 8.5% decline. This drop coincides with diminishing affordability for prospective homebuyers, with the average monthly mortgage cost rising from $2,155 in September to $2,199 in October, as reported by the Mortgage Bankers Association.
While recent economic indicators, including the job market and inflation, have shown signs of cooling, relieving some pressure on the Federal Reserve’s efforts to curb inflation, the real estate market is grappling with the aftermath of elevated mortgage rates. The Fed’s decision to refrain from raising its policy benchmark in November led to a sharp decline in bond yields, influencing home loan rates. The 30-year average fixed-rate mortgage fell to 7.37% last week, down from a two-decade high near 8% in mid-October.
Despite the decline in mortgage rates, the median sales price for existing homes saw a 3.4% year-over-year increase in October, reaching $391,800. Additionally, completed transactions for existing homes hit their lowest point in over 13 years in October, according to NAR’s recent report. The intersection of rising prices and diminished sales activity underscores the complex challenges facing the housing market in the current economic landscape.
Source: Reuters
