When mortgage rates rise, homebuyers tend to back off. This summer and fall have been a case study.
Pending home sales dropped for the fifth consecutive month in October, Bloomberg reported. The National Association of Realtors index recorded a 4.6 percent drop in contract signings to purchase previously owned homes.
In the past year, pending home sales are down 36.7 percent. Mortgage rates were drastically lower at the end of last year. After surging past 7 percent, the average rate on a 30-year, fixed-rate home loan was 6.49 percent last week, according to the Mortgage Bankers Association.
“The upcoming months should see a return of buyers, as mortgage rates appear to have already peaked and have been coming down since mid-November,” NAR chief economist Lawrence Yun said in a statement.
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Priced-out buyers trigger drop in pending home sales
Contract signings were down in a majority of the regions tracked by NAR, most significantly in the West, where they declined 11.3 percent. The South also saw a big drop: 6.4 percent.
Pending home sales are a bellwether for existing-home purchases, although not all contract signings result in a closed sale. A myriad of factors can scuttle a deal, including unexpected appraisal values and buyers’ being unable to land an affordable mortgage.
More listings and lower prices for homes, which soared in value for most of the pandemic, could yet reverse the drop in home sales.
Home price growth showed signs of slowing in September, although prices were still substantially higher than they were a year ago. The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index recorded a 10.6 percent gain year-over-year in September, down from a 12.9 percent annual jump in the previous month.
— Holden Walter-Warner