Pending Home Sales Plummet to Lowest Point in Over Two Decades

In October, contract signings for existing homes hit their slowest pace in over 20 years, as reported by the National Association of Realtors (NAR) on Thursday. The index reading of 71.4 marks the lowest since its inception in 2001, signifying a notable drop in pending sales from the previous month.

Despite the decline in contract signings being less severe than economists anticipated, the housing market continued to experience a slide, particularly in new home sales during the same period. The sharp decrease in the index reflects the impact of surging mortgage rates, deterring budget-conscious buyers and resulting in an 8.5% annual decline in pending sales in the resale market.

Crystal Sunbury, a senior analyst at RSM US real estate, highlighted the alarming rise in rates, reaching a 23-year high of around 8% in October, consequently pushing affordability to record lows. The average rate on a 30-year fixed mortgage surged by half a percentage point during the month, intensifying concerns about affordability and resulting in a retreat in pending home sales.

The scarcity of affordable homes for typical income families further aggravated the situation, with only 37% of homes being affordable in the third quarter, a decline from the previous quarter’s 40.5%. The shortage of available housing inventory became a significant hindrance, exacerbated by homeowners hesitant to sell due to soaring rates, worsening long-term inventory challenges.

Regional disparities were evident in the housing market downturn, with the West experiencing a 6.0% decline in contract signings, while the South and Midwest also registered decreases. Despite a 2.7% monthly gain in contract activity in the Northeast, sales under contract were still down 6.5% from the previous year, with all regions displaying year-over-year declines in activity.

The scarcity of existing inventory continues to drive up home prices despite the higher mortgage rates. This situation has led buyers to turn to new construction, as existing homes have become significantly more expensive relative to new homes, creating a compelling incentive for new home purchases amidst the housing market’s challenges.