U.S pending home sales fell 1.1% in October – the second consecutive month the index has fallen as affordability strains the market, a recent report from the National Association of Realtors said. However, borrowers are still maintaining a strong pace, as contract signings are up 20.2% compared to a year ago.
According to Joel Kan, the Mortgage Bankers Associations assistant vice president of economic and industry forecasting, that robust year-over-year improvement in activity is a sign the market will continue to see sustained demand for housing through the end of 2020.
“Realtors cited a combination of high demand and low inventory, which are making conditions more competitive and exerting upward pressure on prices. The faster price growth is leading to affordability challenges for certain segments of buyers, and particularly for first-time homebuyers,” Kan said.
Year over year, pending sales are showing promise in every region of the U.S, however, the South was the only area that managed to grow from September – up just .1%. The Midwest dropped 0.7% but remained 19.6% higher than a year ago while the West remained unchanged from last month and 20.8% higher year-over-year.
As talk of an urban exodus continues, the Northeast’s pending home sales slid 5.9% in October – though still 18.5% greater than last year.
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With both the inventory of homes for sale and mortgage rates sitting at record lows, NAR chief economist Lawrence Yun said strong demand has pushed home prices to levels that are making it difficult to save for a down payment, especially for first-time buyers who don’t have the luxury of using housing equity from a sale to use as a down payment.
In September, CoreLogic’s Case-Schiller home price index saw the greatest year-over-year gain since 2014, and climbed nearly 23% higher than its last peak in 2006 as multiple economists forecasted prices to continue their upwards growth.
According to Yun, median home prices are rising “much too fast” and that transforming raw land into developable lots and new supply are clearly needed to help tame the home-price growth. At this rate, Yun said even low interest rates have a limit to how much they will help affordability.
Pending home sales looks specifically at contracts that have been signed but where the transaction has not closed on sales of already existing inventory. Because the work-from-home environment has given borrowers the chance to live anywhere, Yun said increased demand for second homes has created strain on the existing homes on the market.
Right now the Census Bureau and Department of Housing and Urban Development estimate a current supply of 3.3 months at the current sales rates as builders attempt to keep up.