U.S. pending home sales rose sharply in October, beating forecasts and reversing a September decline as prospective homebuyers sought to lock in sales before an anticipated rise in mortgage rates and fast-rising rents, according to the National Association of Realtors (NAR).
The association’s Pending Home Sales Index (PHSI), which is based on contract signings and serves as a forward-looking indicator of future home sales, vaulted to a reading of 125.2 in October, a 7.5 percent increase compared to September, when the index fell 2.3 percent from the prior month.
Consensus forecasts cited by FXStreet expected October’s index to rise by a far more modest 1.0 percent.
Lawrence Yun, NAR’s chief economist, said in a statement that expectations for mortgage rates to rise were a likely factor pushing up the rate of contract signings.
“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,” Yun said.
The rate on the benchmark 30-year fixed mortgage on Nov. 29 stood at 3.32 percent, a drop of around 4 basis points compared to a week ago, though higher than the mid-September rate of 3.02 percent, according to Bankrate.
NAR predicted in its most recent quarterly economic outlook (pdf) that the average rate on the 30-year fixed mortgage would rise to 3.3 percent in the first quarter of 2022 and rise to 3.7 percent in the final quarter of next year.
“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,” Yun added.
Yun predicted that, while the housing market will likely continue to be robust, home prices will rise at a slower pace in coming months as mortgage rates rise. The median existing-home price rose 13.1 percent over the year in October to $353,900, NAR said in a separate release.
Total existing housing inventory at the end of October stood at 1.25 million units, NAR data shows, down 0.8 percent from September and 12.0 percent lower than a year ago. That represents around 2.4 months of supply at October’s sales pace, NAR estimates.
The total inventory for new homes for sale stood at 389,000 in October, according the U.S. Census Bureau (pdf), up from 378,000 the prior month and amounting to around 6.3 months of supply at the October sales rate. The median sales price of a new home in October stood at $407,700, according to the agency.
Demand for housing shot up early in the pandemic as Americans sought out less densely populated areas in a hunt for bigger homes to accommodate online schooling and working from home.
While the buying spree has cooled somewhat as workers return to offices and schools reopened for in-person learning, Yun said total annual housing sales are on track for their best showing in more than a decade.
“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,” Yun said.