Contract signings for previously owned homes fell to the lowest level in more than 20 years in October, according to a report by the National Association of Realtors. While high housing costs were a contributing factor, the main obstacle for prospective buyers was the limited supply of homes on the market.
The association's index tracking contract signings for existing homes dropped to its lowest level on record in October. This index measures pending sales, which occur when a contract is signed but before the deal is closed. As a result, changes in the index can indicate future trends in closed sales. The index has been published since 2001.
Lawrence Yun, chief economist of the National Association of Realtors, stated that "During October, mortgage rates were at their highest, and contract signings for existing homes were at their lowest in more than 20 years." In fact, weekly rates measured by Freddie Mac in October reached 7.79%, the highest level since late 2000.
The decline in contract signings suggests that November's existing-home sales report may see an even larger drop, following a two-month slump that resulted in the lowest seasonally-adjusted sales rate since 2010. However, economists had expected a steeper decline of around 2%, so the 1.5% decrease was not as severe as anticipated.
Recent weekly data for November shows a potential end to the losses, although inventory scarcity remains an issue. The Mortgage Bankers Association reported a four-week increase in weekly home purchase applications as mortgage rates slightly decreased. Last week, the average 30-year fixed mortgage rate reached its lowest point since mid-September at 7.29%.
While declining mortgage rates may help qualify more home buyers, limited housing inventory continues to pose a significant challenge to meet the demand. Multiple offers are becoming commonplace, with only one winner and the rest left to continue their search.
By Shaina Mishkin