What the October pending home sales data shows
“Pending home sales ticked up 2.0% in October as buyers took advantage of low rates early in the month. Mortgage rates were near 6.1% at the start of October, but reached 6.7% by the end of the month, bouncing back from September’s lows to the highest level since August. New home sales, which are also based on contract signings, plummeted 17.3% month-over-month and 9.4% year-over-year in October as buyers responded to worsening affordability and more existing home options. Mortgage rates continued to climb through November, which means buyer activity could be slow through the end of the year. However, persistent buyers can take advantage of more for-sale inventory and less competition this winter and secure a home before the spring market picks up.
Contract signings climbed both monthly and annually in all four regions as buyers took advantage of building home supply. The West showed the largest annual increase (16.8%), followed by the Northeast (+7.2%), the South (+2.5%) and the Midwest (+1.8%). On a monthly basis, the Northeast led the pack with a 4.7% increase, followed by the Midwest (+4.0%), the South (+0.9%) and the West (+0.2%).
What this means for buyers, sellers, and the housing market
Pending home sales, or contract signings, measure the first formal step in the home sale transaction, namely, the point when a buyer and seller have agreed on the price and terms. Pending home sales tend to lead existing home sales by roughly one-to-two months and are a good indicator of market conditions. The late fall market has suffered from climbing mortgage rates, as well as economic uncertainty surrounding the presidential election. Interestingly, a recent survey found that roughly 1 in 5 Republicans are more likely to purchase a home in response to Trump’s re-election, while 1 in 4 Democrats are less likely to do the same.
Falling inflation remains crucial for mortgage rate progress, but the latest CPI inflation data showed a slight pick up, which has fueled more market uncertainty. The outcome of the Fed’s December meeting will depend on incoming economic data, including next week’s jobs report. If incoming data continues to cool, the Fed is more likely to choose to cut rates in December’s meeting. However, hotter-than-expected economic data could result in a pause in rate cuts, which could mean higher mortgage rates for longer than initially expected