Pending home sales in the U.S. fell for a second straight month in October according to the National Association of Realtors. Among the four major U.S. regions, contract activity was mixed. Each region achieved year-over-year gains in pending home sales transactions but the only positive month-over-month growth happened in the South.
The National Association of Realtors said its Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contact signing, decreased 1.1% to 128.9 in October. An index of 100 is equal to the level of contract activity in 2001.
Compared to a year ago, pending homes sales increased 20.2%. The two month decline in contracts suggests a slowdown in existing home sales after they increased in October to their highest level since November 2005.
“Pending home transactions saw a small drop off from the prior month but still easily outperformed last year’s numbers for October,” said Lawrence Yun, NAR’s chief economist. “The housing market is still hot, but we may be starting to see rising home prices hurting affordability.”
The U.S. housing market is being driven by record low mortgage rates along with inventory of homes for sale. According to data from mortgage finance agency Freddie Mac, the 30-year fixed mortgage rate is around an average 2.72%
The combination of these factors – scarce housing and low rates – plus very strong demand has pushed home prices to levels that are making it difficult to save for a down payment, particularly among first-time buyers, who don’t have the luxury of using housing equity from a sale to use as a down payment,” said Yun. “Work-from-home flexibility has also increased the demand for both primary and secondary homes.”
The coronavirus pandemic has forced many from the city centers into suburbs as more Americans seek accommodations that are more spacious for remote work and virtual schooling. The covid-19 recession, which started in February, has also disproportionately affected lower-wage earners.
“We expect a resurging pandemic, faltering recovery, and depleted inventories to weigh on home sales, particularly if no additional fiscal stimulus is forthcoming,” said Nancy Vanden Houten, lead economist at Oxford Economics in New York.
Strong demands for housing has outpaced supply, boosting prices out of the reach of many first-time home buyers, despite builders ramping up construction. Builders have complained about shortages of land and materials.
“The manufacturing sector is continuing to recover but remains below pre-pandemic levels,” said Rubeela Farooqi, chief U.S. economist at High Frequency Economics in White Plains, New York. “The threat now comes from virus outbreaks that could interrupt activity, disrupt supply chains and weigh on demand.”
In October, pending home sales edged up 0.1% in the South. Contracts dropped 5.9% in the Northeast and fell 0.7% in the Midwest. The west saw no change.