According to a release from the National Association of Realtors, pending home sales rose 7.5% in October compared to September. Pending sales (signed contracts that have not yet closed or settled) are used as a forward-looking gauge that indicates how many sales will be completed within the next few months.
Mortgage rates have begun to increase, and some home buyers are motivated to act now before rates increase further. Lawrence Yun, NAR's chief economist, pointed out that the jump in pending sales has also been influenced by increasing rent prices. He said, "Motivated by fast-rising rents and the anticipated increase in mortgage rates, consumers that are on strong financial footing are signing contracts to purchase a home sooner rather than later. This solid buying is a testament to demand still being relatively high, as it is occurring during a time when inventory is still markedly low.
Substantial increase in October
"The notable gain in October assures that total existing-home sales in 2021 will exceed 6 million, which will shape up to be the best performance in 15 years."
Despite the jump, October’s pending sales were actually down 1.4% compared to October of 2020. However, last year’s numbers were abnormally high due to shutdowns in the spring and summer that led to a burst of activity later in the year. This year’s activity is still considered to be very strong even though it’s down slightly from last year.
Pending sales rose most significantly in the Midwest (11.8%) and the South (8.0%), and to a lesser extent in the Northeast (6.9%) and West (2.1%). Although the year-over-year numbers were slightly down overall, year-over-year pending sales increased in the Midwest (5.1%) and the South (0.6%).
Declining home inventory
Throughout the past year, the housing market has been continually strong. Data from a recent report by Realtor.com showed declining home inventory, which also attributed to rising prices. According to the report, the national inventory of active listings has decreased 21.9% over the past year. The report referenced a “consistently shrinking inventory of homes for sale" as one of the key findings in the October 2021 housing market trends. It also noted that the average home is selling 8 days faster than last year.
At the end of October, the average rate on a 30-year fixed-rate mortgage was about 3.22%, compared to the rates below 3% that were available in September. While increasing mortgage rates often deter sales, the recent increases seem to have motivated would-be homebuyers to act quickly while low rates still exist, and before further increases.
The market is generally expected to remain strong in the near future, but Yun predicts that growth will slow down. He anticipates home prices will rise at a slower rate and the demand will be milder due to rising mortgage rates.
The release from the National Association of Realtors pointed out that the most improved metropolitan areas over the past year include Orlando-Kissimmee-Sanford, FL; Jacksonville, FL; Tampa-St. Petersburg-Clearwater, FL; Dallas-Fort Worth-Arlington, TX; and Nashville-Davidson, TN.
A final word on pending home sales rebounding
Anyone who thought that the market was beginning to cool got a rude awakening by October's numbers.
We'll continue to track this story carefully and keep you updated on any new developments.