October pending drop in home sales as high prices weigh on buyers

The high demand for housing induced by the pandemic is still there, but buyers can now face a wall of affordability.

Pending home sales fell 1.1% month-over-month in October, but were 20.2% higher than in October 2019. This reading is a measure of signed contracts on homes existing ones, it is therefore a future indicator of concluded sales.

It is also, therefore, a more recent reading on buyer activity, as it represents the people who shop during the month and make buying decisions. Analysts expected a small monthly gain.

“The housing market is still warm, but we may be starting to see rising house prices hurt affordability,” Lawrence Yun, chief economist for the National Association of Realtors, said in a statement.

Mortgage rates approached historic lows during the month, but the supply of homes for sale also hit another historic low. The number of homes for sale at the end of October was down nearly 20% per year and represented only a 2.7 month supply at the current pace of sales. A six month supply is considered a balanced market between buyer and seller.

The growing imbalance has sparked bidding wars and pushed the median price of an existing home to the highest level ever reached in October, according to realtors. At $ 313,000, it was up 16% per year. The offer is particularly scarce on the low end of the market.

“The combination of these factors – housing scarcity and low rates – and very high demand have pushed house prices to levels that make it difficult to save for a down payment, especially among first-time buyers, who don’t have not the luxury of using the home equity of a sale as a down payment, ”Yun said.

Regionally, pending home sales were mixed. In the Northeast, they fell 5.9% for the month, but are up 18.5% from a year ago. In the Midwest, sales fell 0.7% per month, but grew 19.6% per year.

Pending home sales in the south were up 0.1% from September and 21.0% from October 2019. Sales in the west were flat for the month and up 20. 8% compared to a year ago.

With the supply of existing homes being so low, new home sales have benefited. They have increased by more than 40% compared to October 2019, according to the US census. Builders, however, now have the same problem as the existing market. Supply is declining, and the number of homes sold that had not yet been started has increased by over 90% per year.