NAR: Pending home sales slip 2.6% in October
WASHINGTON – Nov. 29, 2018 – Pending home sales declined slightly in October in all regions but the Northeast, according to the National Association of Realtors® (NAR).
The Pending Home Sales Index – a forward-looking indicator based on contract signings – decreased 2.6 percent to 102.1 in October, down from 104.8 in September. However, year-over-year contract signings dropped 6.7 percent, making this the tenth straight month of annual decreases.
Ten straight months of decline certainly isn't favorable news for the housing sector.
"The recent rise in mortgage rates have reduced the pool of eligible homebuyers," says Lawrence Yun, NAR chief economist.
Yun notes that a similar period of decline occurred during the 2013 Taper Tantrum when interest rates jumped from 3.5 percent to 4.5 percent. After 11 months – November 2013 to September 2014 – sales finally rebounded when rates decreased.
"But this time, interests rates are not going down; in fact, they are probably going to increase even further," Yun notes.
While the short-term outlook is uncertain, Yun stressed that he's very optimistic about the long-term outlook. The current home sales level matches sales in 2000.
"However, mortgage rates are much lower today compared to earlier this century, when mortgage rates averaged 8 percent," he says. "Additionally, there are more jobs today than there were two decades ago. So, while the long-term prospects look solid, we just have to get through this short-term period of uncertainty."
All four major regions saw a decline compared to a year ago, with the West seeing the most pronounced drop. Yun said that decline is not at all surprising. "The West region experienced the fastest run-up in home prices in a short time and, therefore, has essentially priced out many consumers," Yun says.
Yun says that the Federal Reserve could be less aggressive in raising rates, and an announcement from the Fed on the same day as NAR's pending sales release suggests that might happen. Yun cites the collapse in oil prices and the decrease in gasoline prices as a reason to slow the increases.
"The inflationary pressure is all but disappearing," he says. "Given that condition, there is less of a need to aggressively raise interest rates. Looking at the broader economy and keeping in mind that the housing sector is a great contributor to the economy, it would be wise for the Federal Reserve to slow the raising of rates to see how inflation develops."
Yun expects existing-home sales this year to decrease 3.1 percent to 5.34 million, and the national median existing-home price to increase 4.7 percent. Looking ahead to next year, existing sales are forecast to decline 0.4 percent and home prices to drop roughly 2.5 percent.
October pending home sales regional breakdown
The PHSI in the Northeast rose 0.7 percent to 92.9 in October, and is now 2.9 percent below a year ago. In the Midwest, the index fell 1.8 percent to 100.4 in October and is 4.9 percent lower than October 2017.
Pending home sales in the South fell 1.1 percent to an index of 118.9 in October, which is 4.6 percent lower than a year ago. The index in the West decreased 8.9 percent in October to 84.8 and fell 15.3 percent below a year ago.
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