As mortgage rates rose to their highest averages in October—nearing 8%—many home buyers backed away from the housing market. As a result, contract signings for existing homes dipped to their lowest number in more than 20 years, the National Association of REALTORS® reported Thursday.
NAR’s Pending Home Sales Index—a forward-looking indicator of home sales based on contract signings—dropped 1.5% in October, reaching its lowest number since the index was created in 2001. Pending home sales are down 8.5% compared to a year ago, NAR reports.
However, a turnaround may be in sight, as mortgage rates have started to drop from their recent peaks. The 30-year fixed-rate mortgage averaged 7.29% for the week ending Nov. 22, Freddie Mac reports.
NAR Chief Economist Lawrence Yun says that despite the latest borrowing costs edging lower, would-be buyers are now up against another obstacle: finding a home to buy.
“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,” Yun says. “Multiple offers, of course, yield only one winner—with the rest left to continue their search.” Despite a slowdown in home sales, multiple offers are still occurring because of low inventory, and many current homeowners are reluctant to sell. NAR notes that buyers are most likely to face intense competition for starter and mid-priced homes.
Home sales are rising in places where more housing inventory is available, Yun says. For example, he adds that sales for properties priced above $750,000 were higher than a year ago due to more inventory at that price point. Further, sales of newly built homes are up 4.5% compared to a year ago because builders can offer buyers more choices than they’ll find in the existing home market.
“It is vital that we continue to focus on boosting housing supply by all means in all corners of the country over the coming months,” Yun says.
Existing inventory in October was 5.7% below a year ago, when it was already at historically low levels, NAR’s data shows. Homes that do come on the market are selling quickly: 66% of existing homes sold in October were on the market for less than a month. Properties typically remained on the market for just 23 days in October, NAR reports.
The Northeast was the only region of the U.S. to post an uptick in home sales activity in October, while the rest of the country saw a decrease in contract signings, led by the West. All four major regions of the U.S. are seeing slowing sales compared to a year ago.