Pending sales of U.S. homes unexpectedly rose to a seven-month high in October as a brief drop in mortgage rates lured buyers.
A National Association of Realtors gauge of contract signings increased 2% to 77.4 last month. That was well above all estimates in a Bloomberg survey, the median of which called for a 2% drop.
Homebuyers frustrated by elevated financing costs got a short-lived reprieve in late summer when mortgage rates hit a two-year low. That spurred a wave of home buying that continued into October, even though rates began to rise again.
“Home buying momentum is building after nearly two years of suppressed home sales,” NAR Chief Economist Lawrence Yun said in a statement. “Even with mortgage rates modestly rising despite the Federal Reserve’s decision to cut the short-term interbank lending rate in September, continuous job additions and more housing inventory are bringing more consumers to the market.”
Pending sales indexes increased in all four U.S. regions, led by a 4.7% increase in the Northeast to the highest level since early last year. The South rose slightly despite hurricanes that struck the Southeast in late September and October.
The supply of previously owned homes has rebounded to the highest level in four years — even if it’s still well below prepandemic levels.
Nonetheless, affordability remains a challenge. Economists now anticipate mortgage rates to stay higher for longer, with the Fed taking a more gradual approach to interest-rate cuts amid stubborn inflation. And prices of previously owned home prices have continued to climb on a year-over-year basis.
Pending-homes sales tend to be a leading indicator for previously owned homes, as houses typically go under contract a month or two before they’re sold.
