Pending home sales drop as expected
Pending-home sales fell for the fifth month in a row in October, posting a 4.6% decline on top of September’s 10.2% drop, the National Association of REALTORS® reported, citing its Pending Home Sales Index.
Year over year, sales were down 37%. Pending sales, in which the contract has been signed but the transaction has not closed, are considered a leading indicator and generally precede existing-home sales by a month or two.
“October was a difficult month for homebuyers as they faced 20-year-high mortgage rates,” NAR Chief Economist Lawrence Yun said in a press release. “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.”
Regionally, pending sales in the West fell 11.3% compared to September, while they slid 6.4% in the South and 4.3% in the Northeast. Sales rose 3.3% in the Midwest.
First American deputy chief economist Odeta Kushi echoed Yun’s comments, noting that mortgage-application data thus far in November indicates homebuyers appear to be returning to the market.
“Even so, the housing industry is not through the storm yet,” Kushi said. “Rates will remain high and could even move higher until there is sustained evidence that inflation is receding. Higher mortgage rates keep buyers and sellers on the sidelines.
The housing market may be cooling down.
Pending home sales, a leading indicator of the health of the housing market, fell 1.8% in July, the second straight month of declines. The National Association of Realtors’ (NAR) Pending Home Sales Index, which tracks the number of homes that are under contract to be sold, dropped 1.8% in July from the previous month. The results missed the expected 0.4% increase in sales, according to Bloomberg analysts’ consensus estimates.
“The market may be starting to cool slightly, but at the moment there is not enough supply to match the demand from would-be buyers,” said Lawrence Yun, NAR’s chief economist, in a press statement.
All four regions of the U.S. reported a year-over-year decline in pending home sales, which is an indicator of home sales that are likely to take place in one to two months. The only region to post an increase in sales from a month ago was the West, where pending sales rose 1.9% in July from June. But sales in the West are down 5.7% compared to a year ago. Pending sales in the Northeast region recorded a 6.6% and 16.9% decrease — the largest monthly and year-over-year decline, respectively, since the data has been tracked.
“Homes listed for sale are still garnering great interest, but the multiple, frenzied offers — sometimes double-digit bids on one property — have dissipated in most regions,” said Yun.
The number of homes for sale at the end of July totaled 1.32 million units, up 7.3% from June’s supply but still down 12% from one year ago, according to the NAR. Morgan Stanley analysts recently said it would take 1 million to 1.5 million additional listings to bring the market back to its historical average number of homes available for sale.
Despite the slowdown, relief may be on the way. “Inventory is slowly increasing and home shoppers should begin to see more options in the coming months,” said Yun, who noted last month that he expects inventory to continue to improve throughout the rest of the year.
Realtor.com’s latest weekly data also reveals more new home listings in 19 of the last 22 weeks, compared with the same period in 2020. The real estate company said homeowners are responding to market trends and started listing homes in larger numbers.
The historically low inventory has driven home prices to record highs. Standard & Poor’s said Tuesday that its S&P CoreLogic Case-Shiller national home price index posted a 16.6% annual gain in May, up from 14.8% in April — marking the highest reading in more than 30 years of data.
“In a typical year, summer represents the peak period of homebuying activity, especially for families who want to be settled in a new school district before the next academic year begins,” said George Ratiu, manager of economic research at Realtor.com, in a statement prior to the results. “The highly-competitive real estate market we saw in the first six months of 2021 squeezed available inventory to record-lows and pushed prices to new highs just as summer emerged, leaving many first-time buyers feeling frustrated.”
Amanda Fung is an editor at Yahoo Finance.
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