Pending home sales plummeted to their lowest level in over two decades as higher mortgage rates weighed on buyers’ purchasing power.
Pending home sales in the United States dropped 1.5% month-over-month in October and by 8.5% over October of last year, according to the latest data from the National Association of REALTORS (NAR).
The Pending Home Sales Index (PHSI) — a forward-looking indicator of home sales based on the number of contracts currently in escrow — fell to an index of 71.4 in October, “the lowest number since the index … originated in 2001.” For reference, an index of 100 is equal to 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.
As reported by The Dallas Express, the average 30-year fixed mortgage rate in the United States climbed over 8% in October, the highest rate in 23 years, according to Mortgage News Daily, which tracks historical mortgage rate data.
“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,” Yun said in the report. “Multiple offers, of course, yield only one winner, with the rest left to continue their search.”
While mortgage rates have eased since their October 2023 peak, they are still causing many would-be home buyers to be priced out of the market.
“For many would-be homebuyers, a mortgage rate above 7% simply means that the numbers do not work for them,” said Lisa Sturtevant, chief economist at Bright MLS, per Bankrate. “Consumer confidence has started to stumble as individuals and households are becoming more anxious about the economy.”
Although NAR notes that pending home sales dropped in all four U.S. regions compared to a year prior, contract signings diminished month over month in the Midwest, South, and West. On the other hand, the Northeast posted a monthly gain in transactions, per the report.
Home sales data for November will be released on Thursday, December 28.
