Homebuyers were notably cautious in October, as uncertainty surrounding the presidential election kept sales in check.
Signed contracts to buy existing homes rose just 0.1 percent month-to-month, according to the Pending Home Sales Index from the National Association of Realtors. The index was 1.8 percent higher than October of 2015. Mortgage rates since the election have spiked to around 4 percent.
Demand for housing is high but supply continues to weaken across much of the nation and is well below 2015 levels. While homebuilders ramped up production in October, overall construction is still well below historical norms. Builders cite the high costs of land, labor and regulation as barriers to increased volume.
“Many of the successful shoppers in October likely had to move fast and outbid others for the few listings available in the affordable price range,” said Lawrence Yun, chief economist for the NAR. “Those obtaining a mortgage last month were likely the last group of buyers to lock in a rate near historically low levels now that rates have marched to around 4 percent since the election.”
Mortgage rates are showing no signs of easing, and future sales may already be impacted. Mortgage applications to purchase a home jumped after the first rate spike post-election, as buyers on the fence moved quickly to buy, leery of even higher rates. Last week, however, applications flattened, and word from real estate agents of weaker demand are surfacing.
Home prices are not helping matters, as the gains continue to increase. While higher mortgage rates should put downward pressure on prices, tight supply is fighting that effect. Whatever is on the market, if it’s in good condition, is still selling for at or above asking price.
“With mortgage rates expected to rise into next year and put added strain on affordability, sales expansion will be contingent on more inventory coming onto the market and continued job gains,” added Yun.
Regionally, the pending home sales in the Northeast inched up 0.4 percent from September and were 3.9 percent above October of 2015. In the Midwest the index rose 1.6 for the month and was 1.2 percent higher annually. In the South, sales declined 1.3 percent monthly and rose 0.8 percent annually In the West, the index rose 0.7 percent monthly and rose 2.5 percent annually.