After a quiet summer, homebuyers were no longer on the fence in October due to a steep decline in mortgage rates.
The National Association of Realtors reports that sales of previously owned homes increased 3.4% from September to a seasonally adjusted, annualized rate of 3.96 million units last month. For the first time in over three years, sales increased by 2.9% over October of the previous year.
Since this number is based on contracts that have been signed, the majority of the transactions took place in August and September. The average rate on the widely used 30-year fixed mortgage was decreasing at the time. According to Mortgage News Daily, it began August at roughly 6.6% and fell to a low of 6.11% by the middle of September.
According to a report from the NAR’s chief economist, Lawrence Yun, the worst of the house sales slump may be over as more transactions result from rising inventory. The demand for homes is rising as a result of the apparent certainty of more job gains and sustained economic expansion. However, mortgage financing is crucial for the majority of first-time homebuyers. Mortgage rates are predicted to level out even if they are still high.
By the end of October, there were 1.37 million units available for purchase, a 19.1% increase over October 2023. At the current rate of sales, that puts inventory at a 4.2-month supply. Since a six-month supply is regarded as balanced between the buyer and seller, it is still on the thinner side.
Prices continue to rise as a result of limited supply. In October, an existing property sold for a median price of $407,200, which was 4% higher than the previous year. In terms of price category, there is more activity at the top end of the market than at the bottom.
According to Yun, we still require 30% more inventory to return to our pre-Covid levels.
The percentage of all-cash purchasers decreased from 29% in October 2023 to 27%. Although historically large, that share probably decreased as mortgage rates decreased.
27% of transactions were made by first-time customers, which is still a historically low percentage and down from 28% the previous year. Typically, they account for 40% of sales.
The 30-year fixed mortgage rate is at 7.05%, which is significantly higher. But according to a recent Redfin report, the number of prospective buyers contacting its brokers has increased recently, especially since the election. Over the course of one week in mid-November, its so-called demand index increased 17% year over year to reach its highest level since August 2023.
Chen Zhao, the economic research lead at Redfin, explained that the surge of buyers and sellers entering the market is the result of pent-up demand from those who were waiting for the election to be over and for the Fed to lower interest rates a second time. We are now closely monitoring if this is a brief post-election surge or if pending sales continue to improve.
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