For the 10th month straight, pending sales weakened, according to the National Association of REALTORS® (NAR) October Pending Home Sales Index (PHSI). Activity fell 2.6 percent month-over-month and 6.7 percent year-over-year. On an annual basis, activity in all regions suffered, with an especially hard hit to the West.
In the Midwest, activity declined 1.8 percent from September, and 4.9 percent from the prior year; in the Northeast, activity increased 0.7 percent from September, but remained 2.9 percent under year-over-year. In the South, activity sank 1.1 percent from September and 4.6 percent from the prior year; and in the West, tumbled 8.9 percent from September and 15.3 percent from the prior year.
“The recent rise in mortgage rates has reduced the pool of eligible homebuyers,” says Lawrence Yun, chief economist at NAR. According to Freddie Mac, the average 30-year rate is steady at 4.8 percent; at the beginning of 2018, it was hovering under 4 percent.
Yun is dispelling parallels to the “Taper Tantrum” of 2013, when interest rates spiked to 4.5 percent, but rewound after a year.
“This time, interests rates are not going down; in fact, they are probably going to increase even further,” Yun says. “However, mortgage rates are much lower today compared to earlier this century, when mortgage rates averaged 8 percent. Additionally, there are more jobs today than there were two decades ago. So, while the long-term prospects look solid, we just have to get through this short-term period of uncertainty.”
Generally, mortgage rates are moved by Treasury yields, but can be indirectly influenced by the actions of the Federal Reserve, which establishes the federal funds rate. The Fed has moved to raise rates three times this year—but, according to Yun, aggressively increasing them is unnecessary, given the dynamics of the economy today.
“The inflationary pressure is all but disappearing,” says Yun. “Given that condition, there is less of a need to aggressively raise interest rates. Looking at the broader economy and keeping in mind that the housing sector is a great contributor to the economy, it would be wise for the Federal Reserve to slow the raising of rates to see how inflation develops.”
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