Pending home sales in the United States last month dropped to their lowest level in decades as mortgage rates rose to their highest levels of the year, according to the National Association of Realtors (NAR).
Pending home sales dropped a further 1.5 percent in October and are 8.5 percent lower year-over-year, according to a NAR report released on Thursday.
Pending home sales—already agreed but not yet paid—have dropped to their lower level since 2001, when the index for pending home sales first started. A sale is listed as pending when the contract has been signed, but the transaction has not closed, though the sale usually is finalized within one or two months of signing.
“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.
“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. Multiple offers, of course, yield only one winner, with the rest left to continue their search.”
With such limited inventory, prices are pushed higher. Together with high borrowing costs, many buyers are waiting for greater affordability or have bowed out of the housing market entirely.
Regionally, the only slight increase in pending sales was in the Northeast, with a 2.7 percent increase in the index month-over-month, reaching 64.8, but still 6.5 percent lower than October 2022.
An index value of 100 means a number of pending home sales equal to the one in 2001 when the index began.
The Midwest index is 71.8 for October, the South is 85.6, and the West has a value of 51.8, or half the number of pending sales compared to 2001.
“Home sales are rising in places where more inventory is available,” Mr. Yun added.
“Sales for properties priced above $750,000 were higher than a year ago, because there is more inventory at this price point than what we saw last October. Additionally, newly built home sales are up 4.5 percent year-to-date due to homebuilders’ ability to create more inventory. It is vital that we continue to focus on boosting housing supply by all means in all corners of the country over the coming months,” he said.
The number of existing home sales in 2001, when the index was initiated, was around 5 million, which is considered normal for the U.S. population, according to NAR.
Existing home sales for October dropped to 3.79 million, a 14.6 percent decrease from a year ago, according to NAR data.
Median Home Price: $390,800
The median existing-home price climbed 3.1 percent from one year ago to $390,800, marking the fourth consecutive month of increase.
“Prospective home buyers experienced another difficult month due to the persistent lack of housing inventory and the highest mortgage rates in a generation,” said Mr. Yun. “Multiple offers, however, are still occurring, especially on starter and mid-priced homes, even as price concessions are happening in the upper end of the market.”
Mr. Yun said the new median price is an all-time high and that an average homeowner “has accumulated more than $100,000 in housing wealth over the past three years.”
First-time buyers were almost 30 percent of the sales.
The average rate for a 30-year fixed-rate mortgage neared 8 percent in October which hit the market hard.
“Buyers will continue to contend with affordability challenges, but slightly lower prices and softening mortgage rates will mean that existing home sales remain roughly level in 2024 with the previous year,” said Hannah Jones, senior economic research analyst at Realtor.com.
“Altogether, 2024 is expected to bring small affordability wins, as the market makes progress towards more desirable conditions.”
The CNN Wire contributed to this report.