After three straight months of diminishing activity, pending home sales rebounded in October, rising 3.5% compared with September to a score of 109.3 on the National Association of Realtors’ (NAR) pending home sales index.
That’s down from a downwardly revised score of 105.6 in September.
As of the end of October, the index had reached its highest reading since June.
Still, pending home sales were down 0.6% compared with a year earlier.
Most of the overall increase was driven by a jump in South, where contract signings increased 7.4% compared with September. In addition, pending sales were up 2.8% in the Midwest and 0.5% in the Northeast. Pending sales fell 0.7% in the West, according to NAR’s data.
“Last month’s solid increase in contract signings were still not enough to keep activity from declining on an annual basis for the sixth time in seven months,” says Lawrence Yun, chief economist for NAR, in a statement. “Home shoppers had better luck finding a home to buy in October, but slim pickings and consistently fast price gains continue to frustrate and prevent too many would-be buyers from reaching the market.”
As has been the case since late 2015, a lack of inventory is the main culprit in pending home sales being down year-over-year in October. This lack of inventory is keeping home prices artificially high in most areas, thus shutting many first-time home buyers out of the market.
Although home builders are doing their best to ramp up production of single-family homes amidst ongoing labor and cost challenges, overall activity still drastically lags demand, Yun says.
Further exacerbating the inventory scarcity is the fact that homeowners are staying in their homes longer. NAR’s 2017 Profile of Home Buyers and Sellers – released last month – revealed that homeowners typically stayed in their home for 10 years before selling, an all-time survey high.
Prior to 2009, sellers consistently lived in their home for a median of six years before selling.
“Existing inventory has decreased every month on an annual basis for 29 consecutive months, and the number of homes for sale at the end of October was the lowest for the month since 1991,” Yun says. “Until new home construction climbs even higher and more investors and homeowners put their home on the market, sales will continue to severely trail underlying demand.”
With two months of data remaining for the year, Yun forecasts existing-home sales to finish 2017 at around 5.52 million – an increase of 1.3% compared with 2016.