US Markets
Thursday, November 30th, 2023 3:08 pm EDT
Key Points
- Sharp Decline in Pending Home Sales: Pending home sales, a key measure of signed contracts on existing homes, witnessed a notable 1.5% drop in October compared to September. This decline is significant as it marks the lowest level recorded since the National Association of Realtors began tracking this metric in 2001, indicating a more challenging situation than observed during the financial crisis over a decade ago. Year-on-year, sales were down by 8.5% in October.
- Housing Demand Challenges Amidst Mortgage Rate Fluctuations: The pending home sales index, reflecting signed contracts, serves as a real-time indicator of housing demand. The October figures capture a period when the 30-year fixed mortgage rate briefly surged above 8%. Although rates have since eased to around 7.3%, realtors emphasize that it’s not solely high mortgage rates impacting the market but also a persistently low supply of homes for sale. The recent decline in mortgage rates is seen as a potential qualifier for more homebuyers, but the limited housing inventory remains a significant obstacle to satisfying housing demand.
- Regional Disparities and Impact on Prices: Pending sales experienced a month-to-month decline in all regions except the Northeast, with the steepest fall observed in the West, known for its higher-priced homes. The overarching dynamic of tight housing supply coupled with sustained demand is exerting pressure on home prices. Home prices continue to reach new highs and show signs of accelerating gains. Notably, the National Association of Realtors highlighted an interesting trend – an increase in sales of homes priced above $750,000, attributed to a comparatively higher supply in the high-end market segment.
In October, pending home sales, a crucial metric gauging signed contracts on existing homes, experienced a significant 1.5% decline from the previous month, marking the lowest level recorded since the inception of tracking by the National Association of Realtors (NAR) in 2001. This downturn surpasses the levels witnessed during the financial crisis a decade ago, emphasizing the severity of the current housing market challenges. In comparison to October of the preceding year, sales plummeted by 8.5%.
The pending home sales index is a valuable indicator as it reflects the most recent snapshot of housing demand by measuring signed contracts. This means it encapsulates the activities of potential buyers during October, a period when the widely watched 30-year fixed mortgage rate briefly surged above 8%. Although rates have since receded to around 7.3%, as reported by Mortgage News Daily, real estate experts assert that the issue extends beyond high mortgage rates. The persistently low supply of available homes for sale is identified as a significant factor hampering market activity.
Lawrence Yun, the chief economist for the NAR, highlighted the impact of limited housing inventory on housing demand despite recent declines in mortgage rates. He noted that while lower rates could potentially qualify more homebuyers, the scarcity of homes on the market remains a substantial impediment. The competitive nature of the market, with multiple offers resulting in only one successful buyer, leaves others to continue their search.
The decline in pending sales was observed across all regions except for the Northeast, with the most substantial decrease recorded in the West – an area known for its higher home prices. Comparisons to the previous year revealed a widespread reduction in sales across all regions, underscoring the pervasive challenges in the housing market.
One notable trend highlighted by the NAR is the increasing sales of homes priced above $750,000. This uptick is attributed to a comparatively higher supply in the luxury housing segment. The dynamics of tight supply and sustained demand continue to exert pressure on home prices, propelling them to new highs and indicating a potential acceleration in their upward trajectory.
In summary, the October decline in pending home sales, reaching historically low levels, underscores the multifaceted challenges in the current housing market. While mortgage rates play a role, the persistently low supply of homes for sale remains a critical factor hindering the fulfillment of housing demand. The competitive environment, with multiple offers and limited inventory, contributes to the complexities faced by potential homebuyers. Moreover, regional variations in sales performance and the observed increase in sales in the high-end market segment provide nuanced insights into the broader dynamics at play in the real estate landscape.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/11/30/pending-home-sales-drop-to-record-low.html
