Pending home sales slid for the fifth consecutive month in October, according to the National Association of REALTORS® (NAR). Three of four U.S. regions recorded month-over-month decreases, and all four regions recorded year-over-year declines in transactions.
“October was a difficult month for homebuyers as they faced 20-year-high mortgage rates,” said NAR Chief Economist Lawrence Yun. “The West region, in particular, suffered from the combination of high-interest rates and expensive home prices. Only the Midwest squeaked out a gain.
“The upcoming months should see a return of buyers, as mortgage rates appear to have already peaked and have been coming down since mid-November,” adds Yun.
Bright MLS Chief Economist Dr. Lisa Sturtevant was a little less optimistic, feeling that both buyers and sellers are being cautious about moving forward, and that such lack of movement could hinder the economy.
“Mortgage rates pushed past 7% in October, stalling new purchase contract activity, and setting up the housing market for its slowest fourth quarter in a decade,” she commented. “However, even with the slowdown in pending sales, homes still sell relatively quickly and prices are holding firm in many markets. We are in a very unusual market, where there are contractions on both the buyer and seller side. While many buyers are on the sidelines, and discretionary purchases have been put on hold, there are still individuals and families who have to move. These home shoppers are finding that there are few new listings to choose from because sellers are holding back as well.
“The general ‘wait-and-see’ approach on the part of both buyers and sellers is showing up in all parts of the country. Pending sales activity declined significantly in all regions, suggesting that fourth quarter home sales transactions will be at record lows across the country,” added Sturtevant. “This decline in transactions has serious implications for the U.S. economy as the residential real estate sector is a major component of GDP. Looking ahead, then, expect fourth quarter GDP growth to be tempered by the stalling housing market.”
The Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contract signings, sank 4.6% to 77.1 in October. Year-over-year, pending transactions slipped by 37%. An index of 100 is equal to the level of contract activity in 2001.
The index is based on a sample that covers about 40% of multiple listing service data each month. In developing the model for the index, it was demonstrated that the level of monthly sales-contract activity parallels the level of closed existing-home sales in the following two months.
Realtor.com® Economic Data Analyst Hannah Jones said the October report wasn’t surprising considering that just a year ago the cost to buy a house in the U.S. was significantly less than today, due to the rapid rise in mortgage rates.
“Mortgage rates up more than 350 basis points and home prices up 13.3% compared to last year meant many buyers simply could not afford to finance a home purchase in October,” she said. “As a result, the PHSI fell below September’s level, which was the lowest level since June 2010.
“Since October, mortgage rates have subsided, dropping half a percentage point from their recent peak of 7.08%. Still, at the current, below-peak rate of 6.58%, financing 80% of a median-priced home purchase would mean a monthly payment roughly $900 higher than just one year ago. This reprieve in mortgage rates may be short-lived depending on upcoming inflation data. The Fed remains committed to their 2% inflation target, meaning more rate hikes are likely, though the magnitude of the hikes will depend on incoming CPI data,” added Jones..
“Typically, as the weather cools off from summer highs, so do home prices. In October, prices were down almost $25,000 from the summer’s peak, though still up compared to last year. Buyers who are able to contend with higher rates may enjoy more inventory, more price reductions and less competition for the remainder of the season. Homeowners hoping to sell before the year is up may have to exercise flexibility in negotiations to keep buyers interested,” she said.
Key highlights
- Pending home sales dropped for the fifth consecutive month, down 4.6% from September.
- Month-over-month, contract signings fell in three of four major U.S. regions, while the Midwest registered an increase.
- Pending sales declined in all regions compared to one year ago.
- Regionally, over the last month, in the Northeast, the PHSI sank 4.3% to 68.7, falling 29.5% from October 2021. The Midwest index increased 3.3% to 83.5, a decrease of 32.1% from a year ago. The PHSI dropped 6.4% to 90.6 in the South, falling 38.2% from the prior year. In the West, the index slipped by 11.3% to 55.6, sinking 46.2% from October 2021.
