The numbers: contract signatures have jumped
The number of home buyers who signed a home purchase contract in October has risen sharply, far exceeding economists’ expectations.
Pending home sales rose 7.5% in October from September, the National Association of Realtors reported on Monday. Economists polled by MarketWatch had forecast a 0.7% increase in pending home sales in October.
Compared to a year ago, pending sales were down 1.4%, reflecting the slowdown in home buying activity from the breakneck pace of 2020.
The Pending Home Sales Index measures real estate transactions for which a contract was signed for an old house, but the sale had not yet been completed, and is compared to contract signing activity in 2001. The index gives an overview of the direction the sales figures of existing homes will take in the coming months, which are based on closed transactions.
“Motivated by the rapid rise in rents and the expected rise in mortgage rates, consumers who are on a solid financial footing are signing contracts to buy a home as soon as possible,” said Lawrence Yun, chief economist of the National Association of Realtors, in a press release. report. “This strong buy is a testament to the fact that demand is still relatively high, as it occurs at a time when stocks are still very low.”
Each region saw an increase in sales, led by an 11.8% gain in the Midwest, the report notes. Yun added that the report consolidates projections that existing home sales will exceed an annual rate of 6 million by 2021.
The big picture
The October Pending Home Sales Report likely helps explain part of the October Existing Home Sales Report released last week. There was a drop in pending home sales in September, but existing home sales increased in October. As a result, many economists were surprised by the increase in existing home sales in October, as the Existing Home Sales report is usually an indicator of existing sales, as it records when contracts are signed, while that sales of existing homes reflect when transactions are closed.
While sales continue at a rapid pace, particularly for the fall, most economists expect momentum to slow down next year, especially if mortgage rates rise as expected.
In the short term, the forward trajectory of the housing market may depend on what happens with the omicron variant of the virus that causes COVID-19. It is still unclear how transmissible the new variant is, or whether it increases the likelihood of more severe cases of COVID-19 that could lead to hospitalization or death. If the variant turns out to be a greater threat – and if it escapes the protections offered by vaccines – there could be a reintroduction of policies aimed at reducing the rate of infections.
The real estate industry has adapted in many ways to provide more flexibility, so there is unlikely to be a slowdown similar to what happened at the start of the pandemic. However, if the new variant weighs on consumer confidence, it could cause some potential buyers to question their decision to buy a home.
What they say
“As we moved into the fall, housing remained competitive, with tight inventories and a rapid turnover rate, although mortgage rates rose 15 basis points during the month,” said George Ratiu, director of economic research for Realtor.com. “Real estate markets have left the overheated spring of 2021 behind, as an increase in the number of homeowners ready to move forward with plans delayed by the pandemic boosted new listings and contained skyrocketing price growth. “