After barely eking out a monthly increase in September, pending home sales fell in October, dropping 2.6% to a score of 102.1 on the National Association of Realtors’ (NAR) Pending Home Sales Index.
Year-over-year, contract signings fell 6.7%.
October marked the tenth consecutive month that pending home sales fell on a year-over-year basis.
Month-over-month, contract signings increased 0.7% in the Northeast, but fell 1.8% in the Midwest, 1.1% in the South and 8.9% in the West.
Year-over-year, pending sales fell in all four regions.
The usual culprits – lack of supply, rising home prices and rising interest rates – continued to dampen activity in October.
“The recent rise in mortgage rates have reduced the pool of eligible homebuyers,” says Lawrence Yun, chief economist for NAR, in a statement.
Yun notes that a similar period of decline occurred during the 2013 Taper Tantrum when interest rates jumped from 3.5% to 4.5%. After 11 months – November 2013 to September 2014 – sales finally rebounded when rates decreased.
“But this time, interests rates are not going down, in fact, they are probably going to increase even further,” Yun says.
Yun, however, points out that mortgage rates “are much lower today compared to earlier this century,” when they “averaged eight percent.”
“Additionally, there are more jobs today than there were two decades ago,” Yun says. “So, while the long-term prospects look solid, we just have to get through this short-term period of uncertainty.”
Yun suggests that the Federal Reserve be less aggressive in raising rates. He cites the collapse in oil prices and the decrease in gasoline prices.
“The inflationary pressure is all but disappearing,” he says. “Given that condition, there is less of a need to aggressively raise interest rates.
“Looking at the broader economy and keeping in mind that the housing sector is a great contributor to the economy, it would be wise for the Federal Reserve to slow the raising of rates to see how inflation develops,” Yun adds.
As far as inventory goes, NAR’s data shows that there has been year-over-year increases in active listings in certain areas of the country, with Denver-Aurora-Lakewood, Colo., Seattle-Tacoma-Bellevue, Wash., Columbus, Ohio, San Francisco-Oakland-Hayward, Calif. and San Diego-Carlsbad, Calif., leading the way.
Yun expects existing-home sales this year to decrease 3.1% to an annual rate of 5.34 million.
He predicts that the national median existing-home price this year will increase 4.7%.
Looking ahead to next year, existing sales are forecast to decline 0.4% and home prices to drop roughly 2.5%.