Pending home sales fell on an annual basis for the 10th consecutive month in October, according to the latest report from the National Association of Realtors.
The Pending Home Sales Index, a forward-looking indicator based on contract signings, fell 2.6% in October to 102.1, down from 104.8 in September. Notably, year over year, contract signings dropped 6.7%.
NAR Chief Economist Lawrence Yun said that 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,” Yun said.
According to Yun, this is a similar period of decline, much like the Taper Tantrum that occurred during 2013, when interest rates jumped from 3.5% to 4.5%. It took 11 months for sales to finally rebound when rates decreased.
“But this time, interest rates are not going down, in fact, they are probably going to increase even further,” Yun said.
Yun stressed that although the short-term outlook is uncertain, he is very optimistic about the long-term outlook. This is because 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%. Additionally, there are more jobs today than there were two decades ago,” Yun said. “So, while the long-term prospects look solid, we just have to get through this short-term period of uncertainty.”
According to the report, pending home sales slightly retreated in all regions but the Northeast in October. The West experienced the most pronounced decline.
“The West region experienced the fastest run-up in home prices in a short time and, therefore, has essentially priced out many consumers,” Yun said.
Yun said the Federal Reserve should be less aggressive in raising rates, citing the collapse in oil prices and the decrease in gasoline prices.
“The inflationary pressure is all but disappearing. Given that condition, there is less of a need to aggressively raise interest rates,” Yun said. “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.”
Cities experiencing the largest increase in listings in October 2017 and 2018 included Denver-Aurora-Lakewood, Colorado; Seattle-Tacoma-Bellevue, Washington; Columbus, Ohio; and San Francisco-Oakland-Hayward, California, according to Realtor.com.
The PHSI in the Northeast increased 0.7% to 92.9 in October and is 2.9% lower than 2017. The Midwest index retreated 1.8% to 100.4 but is still 4.9% lower than this time last year.
Lastly, pending home sales in the South declined 1.1% to 118.9, coming in 4.6% below 2017. The index in the West dropped 8.9% to 84.8 and plummeted 15.3% from last year.
So how does Yun expect the housing market to perform for the remainder of the year? Well, he said existing-home sales will decrease 3.1% to 5.34 million, and the national median existing-home price will rise 4.7%. As for next year, Yun predicted that existing sales will decline 0.4% and home prices will drop roughly 2.5%.