According to the newest Pending Home Sales Index (PHSI), published by the National Association of Realtors (NAR), October pending home sales across the country fell on both a monthly and yearly basis, dropping 1.5% from September 2023 and 8.5% over 2022.
These drops correspond to an index level of 71.4—the lowest the index has been at since its inception in 2001—which was when the index was benchmarked to 100 based on that year's housing activity.
"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."
The Northeast PHSI jumped 2.7% from last month to 64.8, although representing a loss of 6.5% from October 2022. The Midwest index contracted 0.4% to 73.8 in October, down 10.3% from one year ago.
The South PHSI decreased 1.9% to 85.6 in October, declining 7.1% from the prior year. The West index fell 6.0% in October to 51.8, dipping 10.8% 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.1 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."
Realtor.com Senior Economic Research Analyst Hannah Jones commented on the report by saying:
“Pending home sales fell 1.5% month-over-month in October, dropping to the lowest level in the data’s history (back to 2001). Pending home sales were 8.5% lower year-over-year as mortgage rates reached multi-decade highs in October. The Pending Home Sales Index increased month-over-month in the Northeast (+2.7%), but fell in the Midwest (-0.4%), South (-1.9%) and the West (-6.0%). All four regions saw year-over-year declines, ranging from a 6.5% decline in the Northeast to a 10.8% drop in the West. New home sales, which are also based on contract signings, fell in October but remained above the previous year’s levels, as buyers continued their pivot towards new construction amid waning existing home supply.”
“While buyers faced limited existing home inventory, especially as mortgage rates climbed in October, new construction activity picked up, offering hope that additional home supply is inbound. However, as the cost of homeownership remains out of reach for many would-be buyers, homebuilder sentiment fell to the lowest level since December 2022, suggesting builders are concerned about how ongoing affordability headwinds will impact buyer demand.”
“Pending home sales or contract signings measure the point when a buyer and seller have agreed on the price and terms for a specific home sale. As a result, they tend to lead existing home sales by roughly one-to-two months. Today’s data signal 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. Existing home sales fell to the lowest level since 2010 in October, remaining below 4 million. While today’s home shoppers continue to face a tough for-sale market, the rental market offers an appealing alternative. The national median rent fell again in October, marking the sixth month of annual decline.”
“While existing home sales are on track to finish the year at a level significantly lower than in 2022, Realtor.com expects 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 (+0.1%) in 2024 with the previous year.”
“Buyers will continue to see limited existing inventory, but we expect that single family housing starts will pick up slightly, looking to fill the gap and offer buyers more options. On the rental side, we expect to see rents soften further in 2024 as new rental inventory enters the market. However, as many home shoppers opt to rent instead of purchase a home, rental prices are not likely to dip significantly despite plenty of supply coming online. Altogether, 2024 is expected to bring small affordability wins, as the market makes progress towards more desirable conditions.”
First American Deputy Chief Economist Odeta Kushi also made a brief comment on the report:
“Pending home sales decline 1.5% in October to the lowest level in the history of the series, which dates back to 2001. Pending sales are down 8.5% compared with one year ago.”
“The month-over-month decline was a little better than the consensus expectations of a 2% drop. Important to note that pending sales are reflecting the month of October, when mortgage rates were approached 8%. Mortgage rates have since retreated. In fact, seasonally adjusted mortgage applications have picked up in November, implying a modest increase in sales.”
“Buyers and sellers are very mortgage-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.”
Click here to view the report in its entirety.