In a grim sign for the housing market, pending home sales plummeted in October to their lowest level since tracking began in 2001, surpassing the depths of the financial crisis decades ago.
The National Association of Realtors (NAR) reported that pending home sales, a key metric gauging signed contracts on existing homes, nosedived by 1.5% in October compared to September. This decline marks the lowest point in the metric's history, indicating a more severe situation than during the financial crisis.
Year-over-year, sales were down by 8.5%, reported CNBC.
A contributing factor to this downturn was the increase in mortgage rates during October. The average on the 30-year fixed loan briefly surged over 8%, causing an impact on potential buyers. Although rates have since moderated, hovering above 7%, the supply of available homes remains limited.
"The 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," warned Lawrence Yun, chief economist for the NAR. "Multiple offers, of course, yield only one winner, with the rest left to continue their search."
The Pending Home Sales Index, measuring signed contracts and offering a current snapshot of housing demand, underscored the challenges faced by potential homebuyers in October. This period coincided with a brief surge in the 30-year fixed mortgage rate, surpassing 8%.
Pending sales fell across all areas except the Northeast. The West, with its higher home prices, experienced the steepest decline. Sales across all regions also reflected a decline compared to the same period last year.
Tight supply and robust demand have exerted sustained pressure on home prices. The Realtors observed an increase in sales for homes priced above $750,000, primarily driven by greater supply in the high-end market.
As of November 2023, the average interest rate for a 30-year fixed mortgage stands at 7.12%, an increase from its 3.22% level recorded in early 2022. Similarly, the average cost of a 15-year fixed-rate mortgage has surged to 6.55%, marking an uptick from its 2.43% rate in January 2022, according to Forbes.
In the present economic landscape, Adjustable Rate Mortgages (ARMs) may present a more financially viable option compared to their fixed-rate counterparts. The most recent average for a 5/1 ARM (one type of adjustable rate mortgage) sits at 6.04%, providing an alternative for borrowers navigating the current environment of heightened mortgage rates.
Jim Thomas ✉
Jim Thomas is a writer based in Indiana. He holds a bachelor's degree in Political Science, a law degree from U.I.C. Law School, and has practiced law for more than 20 years.
© 2024 Newsmax. All rights reserved.