Pending home sales dropped 1.5% in October, according to the National Association of Realtors (NAR). It marks a concerning trend for the housing market and reveals a challenging landscape for potential buyers and sellers, influenced by factors such as rising mortgage rates and limited housing inventory.
The Pending Home Sales Index (PHSI), which serves as a forward-looking indicator of home sales based on contract signings, reached a historic low of 71.4 in October. This level, the lowest since the index's inception in 2001, reflects the growing challenges in the housing market. Year over year, pending transactions recorded a significant 8.5% decline. To provide context, an index value of 100 represents the level of contract activity in 2001.
"During October, mortgage rates were at their highest, and contract signings for existing homes were at their lowest in more than 20 years,” said Lawrence Yun, NAR chief economist. “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. Multiple offers, of course, yield only one winner, with the rest left to continue their search.”
First American Financial Deputy Chief Economist Odeta Kushi said buyers and sellers are rate sensitive.
"Higher mortgage rates have had a dual impact on the housing market – reducing affordability for potential buyers and keeping sellers rate-locked in. While there remains quite a bit of demand for homes on the sidelines, you can't buy what's not for sale, even if you can afford it," Kushi said.
Breaking down the regional trends, the Northeast region bucked the national trend by posting a 2.7% increase in the PHSI from the previous month, reaching 64.8. However, this still represents a 6.5% decrease compared to October 2022. The Midwest saw a 0.4% contraction in the PHSI to 73.8 in October, down by a substantial 10.3% from the same month in the previous year.
The Southern region recorded a 1.9% decline in the PHSI to 85.6 in October, reflecting a 7.1% decrease from the prior year. Meanwhile, the Western region faced a steeper decline, with a 6.0% drop in the PHSI to 51.8 during October, marking a significant 10.8% decrease from October 2022.
“Home sales are rising in places where more inventory is available,” Yun added. “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. Additionally, newly built home sales are up 4.5% year-to-date due to homebuilders’ ability to create more inventory. 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.”
