A single family home in San Marcos, California is displayed for sale and held in trust.
Mike Blake | Reuters
Buyers returned to the property market in October, despite the rise in mortgage rates.
According to the National Association of Brokers, signed contracts for existing homes, known as pending sales, rose 7.5% from September. While sales were still 1.4% lower than in October 2020, they marked a cyclical high in the housing market last fall.
Pending sales is a forward-looking indicator of sales that will close in a month or two. Wall Street analysts expected outstanding sales in October to be unchanged from the previous month.
The number of sales in October also rose unexpectedly.
“Motivated by rapidly rising rents and expected increases in mortgage rates, consumers who are on solid financial terms are likely to sign home purchase contracts sooner rather than later,” said Lawrence Yun, chief economist at NAR. “This solid purchase is evidence that demand is still relatively high as it comes at a time when inventory levels are still significantly low.”
Sales were strongest in the Midwest and South regions, increasing 11.8% and 8.0% month over month, respectively.
In the northeast, pending sales rose 6.9% month on month and in the west 2.1%.
The average interest rate on the popular 30-year fixed-rate mortgage was just under 3% in mid-September, but climbed to 3.22% by the end of October, according to the Mortgage News Daily. However, mortgage rates fell last Friday due to news of the new Omicron variant of the coronavirus.
Home buyers, especially those at the lower end of the market, continue to find very few homes for sale. The total housing stock at the end of October was 1.25 million units, 0.8% less than in September and 12.0% less than a year ago (1.42 million). At the rate of sales in October, this corresponds to an extremely low 2.4-month offer. An offer of four to six months is generally considered to be a balanced market between buyers and sellers.
The rise in home purchases in autumn, which was also noticeable in sales in October, rounds off an extremely strong year for the market. Last year’s jump started just months after the U.S. pandemic began, and while many thought it was losing steam, it appears to be not yet.
“The remarkable increase in October ensures that total sales of existing properties will exceed 6 million in 2021, which will prove to be the best performance in 15 years,” added Yun.
New home sales, which are also measured by signed contracts, fell in October, but that could be because large construction companies cut their sales to address supply chain problems in the construction industry.
Correction: In the Northeast, pending sales rose 6.9% month on month. In an earlier version, the time period was specified incorrectly.