Signed contracts to buy previously owned homes in the U.S. fell last month to the lowest level on record as a spike in mortgage rates locked many would-be buyers out of the market.
The National Association of Realtors said Thursday that its pending home sales index decreased 1.5% in October to the lowest reading since the gauge was established in 2001. Economists surveyed by Refinitiv had expected contracts to refuse by 2%.
“During October, mortgage rates were at their highest, and contract signings for existing homes were at their lowest in more than 20 years,” said Lawrence Yun, NAR chief economist. “Recent weeks’ successive declines in mortgage rates will help qualify more home buyers, but limited housing inventory is significantly preventing housing demand from fully being satisfied.”
Pending sales remain down 8.5% from the same time last year.
The report suggests that the housing market still has a long way to go before it recovers from the deep freeze that it entered as a result of the Federal Reserve’s interest-rate hike campaign.
“Given that inventory levels remain low, and the real estate market generally slows heading into the holidays, pending home sales might not bounce right back from this low point,” said Kate Wood, a home and mortgage expert at NerdWallet.
Borrowing costs have retreated noticeably over the course of November, as many investors believe the Fed is done hiking interest rates following two cooler-than-expected inflation reports last week.
Rates on the popular 30-year fixed mortgage fell to a two-month low of 7.44% last week, according to Freddie Mac, down from a high of 7.79% at the end of October.
Still, rates remain well above the pre-pandemic average of 3.9%.
The astronomic rise in mortgage rates over the past year is not only dampening consumer demand but is also limiting inventory. That is because sellers who locked in a low mortgage rate before the pandemic have been reluctant to sell with rates continuing to hover near a two-decade high, leaving few options for eager would-be buyers.
A recent report from Realtor.com shows that the total number of homes for sale, including those that were under contract but not yet sold, fell by 4% in September, compared with the same time a year ago.
Available home supply remains down a stunning 45.1% from the typical amount before the COVID-19 pandemic began in early 2020, according to the report.