Pending home sales drop to lowest level on record, in bad sign for housing market

Contract signings for existing homes have fallen to a record low, in another sign of the beating the housing market is taking.

The National Association of Realtors pending home sales index, a forward-looking indicator of home sales based on contract signings, declined 1.5% from September to October — the lowest level since the metric began being tracked in 2001, lower even than during the financial crisis .

Pending home sales plunged 8.5% from October 2022 to last month.

“During October, mortgage rates were at their highest, and contract signings for existing homes were at their lowest in more than 20 years,” said NAR chief economist Lawrence Yun.

“Recent weeks' successive declines in mortgage rates will help qualify more home buyers, but limited housing inventory is significantly preventing housing demand from fully being satisfied. Multiple offers, of course, yield only one winner, with the rest left to continue their search,” he added.

Pending home sales are falling further in certain parts of the country, depending on housing inventory. For instance, the index reading in the West was far lower than in the South.

The new data come after mortgage rates hit multi-year highs in October. At one point, the average rate on a 30-year, fixed-rate mortgage eclipsed 8%. The last time mortgage rates were that high was in 2000. Rates have since cooled off a bit, providing a little relief for homebuyers.

As of Thursday, the average rate on a 30-year, fixed-rate mortgage was 7.15%, according to , which tracks daily rate changes.

New and existing home sales both declined in October. New home sales fell 5.6% from September to October to a seasonally adjusted annual rate of 679,000, while existing home sales once again slowed in October, falling to their lowest level in more than a decade amid the higher mortgage rates.

Despite higher mortgage rates, which usually depress housing costs, home prices have been very slow to moderate, offering further pain for consumers looking to invest in a home. That is largely because of a unique interplay between the new and existing home markets.

During the height of the pandemic, homebuyers could lock in ultra-low mortgages of less than 3%. But because mortgage rates have increased so much, owners of existing homes with mortgages locked in before 2022 are shying away from selling because they want to keep their historically low rates.

That means less existing home inventory on the market, making new homes more of a hot commodity and buoying both prices.

Mortgage rates are unlikely to see any real significant relief until the Federal Reserve starts cutting interest rates, which is expected to occur in the beginning to middle part of 2024. Wells Fargo said in its 2024 annual outlook that next year should be a bit better for homebuyers.

“Although we do not envision a return to sub-5% mortgage rates during our forecast horizon, these incremental improvements would likely reinvigorate homebuyer demand and produce a better outturn for residential investment in 2024 than in 2023,” the report reads.