Pending home sales slide in October
A day removed from news that new home sales fell 8.9% in October, the National Association of Realtors (NAR) reported that pending home sales fell 2.6% in October.
The latest Pending Home Sales Index (PHSI) indicates that contract signings fell to 102.1 last month from 104.8 in September. Year-over-year contract signings dropped 6.7% making the 10th straight month of annual decreases.
According to Lawrence Yun, chief economist of the NAR, the recent rise in mortgage rates is reducing the pool of eligible homebuyers.
Yun notes that a similar period of decline occurred during the 2013 Taper Tantrum when interest rates jumped from 3.5% to 4.5%. After 11 months – November 2013 to September 2014 – sales rebounded when rates decreased.
“But this time, interest rates are not going down, in fact, they are probably going to increase even further,” Yun said.
All four major regions saw a decline when compared to a year ago, with the West seeing the most pronounced drop. Yun said that decline is not at all surprising. “The West region experienced the fastest run-up in home prices in a short time and therefore, has essentially priced out many consumers.”
The PHSI in the Northeast rose 0.7% to 92.9 in October, and is now 2.9% below a year ago. In the Midwest, the index fell 1.8% to 100.4 in October and is 4.9% lower than October 2017.
Pending home sales in the South fell 1.1% to an index of 118.9 in October, which is 4.6% lower than a year ago. The index in the West decreased 8.9% in October to 84.8 and fell 15.3% below a year ago.
Yun says the Federal Reserve should be less aggressive in raising rates and points to 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. 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.”
Looking ahead, the NAR expects existing-home sales this year to decrease 3.1% to 5.34 million, and the national median existing-home price to increase 4.7%. For 2019, existing sales are forecast to decline 0.4% and home prices to drop roughly 2.5%.
Yun said that he is very optimistic about the long-term outlook. 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,” said Yun. “So, while the long-term prospects look solid, we just have to get through this short-term period of uncertainty.”
The latest Pending Home Sales Index (PHSI) indicates that contract signings fell to 102.1 last month from 104.8 in September. Year-over-year contract signings dropped 6.7% making the 10th straight month of annual decreases.
According to Lawrence Yun, chief economist of the NAR, the recent rise in mortgage rates is reducing the pool of eligible homebuyers.
Yun notes that a similar period of decline occurred during the 2013 Taper Tantrum when interest rates jumped from 3.5% to 4.5%. After 11 months – November 2013 to September 2014 – sales rebounded when rates decreased.
“But this time, interest rates are not going down, in fact, they are probably going to increase even further,” Yun said.
All four major regions saw a decline when compared to a year ago, with the West seeing the most pronounced drop. Yun said that decline is not at all surprising. “The West region experienced the fastest run-up in home prices in a short time and therefore, has essentially priced out many consumers.”
The PHSI in the Northeast rose 0.7% to 92.9 in October, and is now 2.9% below a year ago. In the Midwest, the index fell 1.8% to 100.4 in October and is 4.9% lower than October 2017.
Pending home sales in the South fell 1.1% to an index of 118.9 in October, which is 4.6% lower than a year ago. The index in the West decreased 8.9% in October to 84.8 and fell 15.3% below a year ago.
Yun says the Federal Reserve should be less aggressive in raising rates and points to 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. 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.”
Looking ahead, the NAR expects existing-home sales this year to decrease 3.1% to 5.34 million, and the national median existing-home price to increase 4.7%. For 2019, existing sales are forecast to decline 0.4% and home prices to drop roughly 2.5%.
Yun said that he is very optimistic about the long-term outlook. 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,” said Yun. “So, while the long-term prospects look solid, we just have to get through this short-term period of uncertainty.”