Contract signings in October for previously owned homes fell to the lowest level in more than 20 years. High housing costs were part of the problem—but with mortgage rates sliding, a bottom could be here, says one economist.
A National Association of Realtors said Thursday that its index tracking contract signings for existing homes fell in October to its lowest level on record. A sale is considered pending when a contract is signed, but before the deal closes—meaning index changes can lead closed sales by a month or two. The index was first published in 2001.
“During October, mortgage rates were at their highest, and contract signings for existing homes were at their lowest in more than 20 years,” Lawrence Yun, the trade group’s chief economist, said in a statement. Indeed, weekly rates measured by
Freddie Mac
in October reached 7.79% in October, its highest level since late 2000.
The index reading may be a sign that November’s existing-home sales report will drop even lower following a two-month slump to the lowest seasonally-adjusted sales rate since 2010. Sales fell 1.5% in October from the month prior—but economists saw the drop coming. Those surveyed by FactSet had expected a steeper decline of about 2%.
But leading weekly data in November suggests October could be the lowest point for contract signings. “It should be the bottom,” Yun told Barron’s about the pending-home sales report. “Almost always, lower mortgage rates lead to more home sales.”
The slump in closed sales could similarly be approaching the end, with a one-to-two month lag. The average 30-year fixed mortgage rate this week was 7.22%, the lowest since mid-September.
Weekly home purchase application volume measured by the Mortgage Bankers Association has increased for four straight weeks as mortgage rates have given back ground in November. “The steady decline in mortgage rates over the past month has fueled an uptick in mortgage demand,” Bob Broeksmit, the Mortgage Bankers Association’s president and CEO, said in a statement.
“In addition to helping to improve affordability for home buyers, a continued decline in mortgage rates could also convince some homeowners to sell, which would increase the low supply of existing homes on the market,” Broeksmit added.
That would be more good news for home sales volume. “Limited housing inventory is significantly preventing housing demand from fully being satisfied,” Yun said. “Multiple offers, of course, yield only one winner, with the rest left to continue their search.”
Write to Shaina Mishkin at [email protected]
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