Pending home sales fell to a near record low in November, but the plunge powered by higher borrowing costs and economic uncertainty may not have much further to go.
Pending home sales declined for the sixth consecutive month in November, according to an index by the National Association of Realtors. Contract signings to purchase previously owned homes dropped 4 percent from October, down slightly from the 4.6 percent monthly drop seen in October.
NAR’s forward-looking indicator, which dates back 20 years, measures contract activity compared to 2001 — 100 means activity is equal to that year. In November, the index recorded a score of 73.9, the second-lowest monthly reading in the index’s history.
Year-over-year, pending home sales are down 37.8 percent, likely a result of how much mortgage rates have surged since a year ago. After rates recently surpassed 7 percent amid the Federal Reserve’s inflation-fighting interest rate hikes, however, they’ve hovered closer to 6.5 percent in recent weeks, which could bring sidelined buyers back into the fold.
“There are approximately two months of lag time between mortgage rates and home sales,” NAR chief economist Lawrence Yun said in a statement. “With mortgage rates falling throughout December, home-buying activity should inevitably rebound in the coming months.”
Contract signings in the four regions tracked by NAR all posted month-to-month and year-to-year declines. The Northeast had the biggest monthly decline, falling 7.9 percent. The West only recorded a 0.9 percent drop from October, but the 45.7 percent year-over-year drop was the largest among the regions.
Pending home sales are often seen as an indicator for existing-home sales, though not all contract signings result in a closed sale. Unexpected appraisal values and fickle mortgage rates are among the factors that can lead to a canceled contract.
While prices remained much higher than a year ago, home price growth slowed once again in October. The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index recorded a 9.2 percent gain year-over-year in October, down from a 10.6 percent annual jump in September.