October 2023: Pending Home Sales Fall to Record Low
Pending home sales experienced a decline of 1.5% month-over-month in October, reaching the lowest level since the data began in 2001. This 8.5% year-over-year drop coincided with mortgage rates hitting multi-decade highs in October. Despite the fall in new home sales during the same period, they remained above the previous year’s levels as buyers shifted their focus to new construction amid a dwindling existing home supply.
New Construction Activity Picks Up
As mortgage rates climbed in October, buyers faced limited existing home inventory. However, new construction activity increased, offering hope for more home supply. Nonetheless, the cost of homeownership remains unattainable for many potential buyers, leading to a drop in homebuilder sentiment to its lowest level since December 2022. This suggests that builders are concerned about how ongoing affordability challenges will impact buyer demand.
Implications for Buyers, Sellers, and the Housing Market
Pending home sales or contract signings indicate when a buyer and seller agree on the price and terms for a specific home sale. As a result, they typically lead existing home sales by about one to two months. Today’s data suggest that home sales activity will likely remain steady but at a low level over the next few months due to limited options and significant affordability challenges facing buyers. Existing home sales in October fell to their lowest level since 2010, remaining below 4 million.
While today’s home shoppers continue to face a tough for-sale market, the rental market offers an appealing alternative. The national median rent fell again in October, marking the sixth consecutive month of annual decline.
Regional Market Variations
The Pending Home Sales Index increased month-over-month in the Northeast (+2.7%), but fell in the Midwest (-0.4%), South (-1.9%), and the West (-6.0%). All four regions experienced year-over-year declines, ranging from a 6.5% decrease in the Northeast to a 10.8% drop in the West.
Outlook for 2024
While existing home sales are on track to finish the year significantly lower than in 2022, Realtor.com expects the market to shift in 2024. Buyers will still face affordability challenges, but slightly lower prices and softening mortgage rates will result in existing home sales remaining roughly level (+0.1%) in 2024 compared to the previous year. Buyers will continue to encounter limited existing inventory, but single-family housing starts are expected to pick up slightly, aiming to fill the gap and offer more options.
On the rental side, rents are predicted to soften further in 2024 as new rental inventory enters the market. However, as many home shoppers opt to rent instead of purchasing a home, rental prices are unlikely to decrease significantly despite the ample supply coming online. Overall, 2024 is anticipated to bring small affordability wins as the market progresses towards more favorable conditions.
Orginal article: Link To Article – provided by Kansas City Realtors