October marked the 10th consecutive month of decreases in contract signings—not a good sign for the housing market as it starts the traditionally slower months of sales. The National Association of REALTORS®’ Pending Home Sales Index—a forward-looking indicator based on contract signings—fell 2.6 percent to a reading of 102.1 in October. On a year-over-year basis, contract signings plunged 6.7 percent.
“The recent rise in mortgage rates have reduced the pool of eligible home buyers,” says Lawrence Yun, NAR’s chief economist.
He says the market is following a similar pattern to 2013, when interest rates jumped from 3.5 percent to 4.5 percent. It took 11 months—from November 2013 to September 2014—for sales to rebound back, and only when rates started decreasing again.
“This time, interest rates are not going down, in fact, they are probably going to increase even further,” Yun says.
The 30-year fixed-rate mortgage averaged 4.81 percent last week, inching nearer to a seven-year high of 4.94 percent, according to Freddie Mac.
Yun still remains upbeat about the long-term outlook for the housing market, however. Current home sales match 2000 levels, he notes. “Mortgage rates are much lower today compared to earlier this century, when mortgage rates averaged 8 percent,” he says. “Additionally, there are more jobs today than there were two decades ago. So, while the long-term prospects look solid, we just have to get through this short-term period of uncertainty.”
Home buyers who haven’t been priced out of the market are starting to see more choices in inventories. Several markets are reporting year-over-year increases in active listings. According to realtor.com®, the largest uptick in active listings in October compared to a year ago are: Denver-Aurora-Lakewood, Colo.; Seattle-Tacoma-Bellevue, Wash.; Columbus, Ohio; San Francisco-Oakland-Hayward, Calif.; and San Diego-Carlsbad, Calif.
