Home sales jumped in October before mortgage rates climbed

A sharp drop in mortgage rates derailed homebuyers in October after a slow summer.

Pre-owned home sales last month rose 3.4% from September to a seasonally adjusted annualized rate of 3.96 million units, according to the National Association of Realtors. Sales were 2.9% higher than October last year, marking the first annual increase in more than three years.

This count is based on signed contracts, which means that most deals were completed in August and September. During this time, the average rate on the popular 30-year fixed mortgage was falling. It started August around 6.6% and fell to a low of 6.11% by mid-September, according to Mortgage News Daily.

“The worst of the decline in home sales may be over, with increased inventory leading to more transactions,” Lawrence Yun, NAR’s chief economist, said in a statement. “Additional job creation and continued economic growth appear assured, which will translate into increasing demand for housing. However, for most first-time home buyers, mortgage financing is critically important. Although mortgage rates remain high, they are expected to stabilize.

There were 1.37 million units for sale at the end of October, an increase of 19.1% from October 2023. This puts inventory at a 4.2 month supply at the current sales pace. It remains even more modest, because a 6-month supply is considered balanced between the buyer and the seller.

Tight supply continues to put upward pressure on prices. The median price of an existing home sold in October was $407,200, an increase of 4% from the previous year. By price category, the higher end of the market sees more activity than the lower end.

“We still need another 30% in stock just to get back to pre-Covid conditions,” Yun said.

The share of cash buyers has returned to 27%, compared to 29% in October 2023. This figure remains historically high, but falling mortgage rates have likely caused this share to decline.

First-time buyers represented 27% of sales, compared to 28% the previous year and still a historically low level. They generally represent 40% of sales.

Mortgage rates are now much higher, at 7.05% over a 30-year fixed. A new report from Redfin, however, shows a recent increase in the number of potential buyers contacting its agents, particularly after the election. Its so-called demand index rose 17% year-on-year over a one-week period in mid-November to its highest level since August 2023.

“The influx of buyers and sellers rushing into the market is the result of pent-up demand from people who have been waiting for the election to pass and the Fed to cut interest rates a second time.” , said Chen Zhao, economic researcher at Redfin. lead. “Now we are closely monitoring whether this is a brief post-election boom or whether it translates into a steady improvement in ongoing sales,”