US pending home sales fell to their lowest level in 20 years in October as mortgage rates surged to their highest levels of the year, according to a report released Thursday.
Pending home sales dropped 1.5% last month from September, monthly data from the National Association of Realtors showed. The pending home sales index — a forward-looking indicator based on contract signings rather than closings — was down 8.5% from a year ago.
Only the Northeast saw monthly gains in pending transactions in October, while the Midwest, South and West all experienced a loss. All four US regions had year-over-year declines in transactions.
“Recent weeks’ successive declines in mortgage rates will help qualify more home buyers, but limited housing inventory is significantly preventing housing demand from fully being satisfied,” said Lawrence Yun, NAR chief economist.
With such limited inventory, prices are pushed higher. Together with high borrowing costs, many buyers are waiting for greater affordability or have bowed out of the housing market entirely.
“Multiple offers, of course, yield only one winner, with the rest left to continue their search,” said Yun.
Inventory issues remain
Home sales are rising in places where more inventory is available, according to Yun.
“Sales for properties priced above $750,000 were higher than a year ago, because there is more inventory at this price point than what we saw last October,” he said.
The average rate for a 30-year fixed-rate mortgage neared 8% in October and hit the market hard.
Completed sales of existing homes and sales of new construction homes, which are also based on contract signings, also fell in October.
But while pending home sales were down year over year, new home sales rose from year-ago levels as buyers continued their pivot towards new construction amid a historically low supply of existing homes on the market.
“While buyers continued to face limited existing home inventory, especially as mortgage rates climbed in October, new construction activity picked up, offering hope that additional home supply is inbound,” said Hannah Jones, senior economic research analyst at Realtor.com.
October’s pending home sale numbers suggest that home sales activity is likely to remain steady, at a low level, over the next few months as limited options and significant affordability challenges weigh on buyers, said Jones.
In October, existing home sales fell to the lowest level in 13 years, remaining below 4 million for the first time since October 2010.
While existing home sales are on track to finish the year at a level significantly lower than in 2022 — and could end the year with the fewest homes sold since 1993 — Jones said economists expect the market will start to shift in 2024.
“Buyers will continue to contend with affordability challenges, but slightly lower prices and softening mortgage rates will mean that existing home sales remain roughly level in 2024 with the previous year,” Jones said. “Altogether, 2024 is expected to bring small affordability wins, as the market makes progress towards more desirable conditions.”
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