People wait to visit a house for sale in Floral Park, Nassau County, New York.
Wang Ying | Xinhua News Agency | Getty Images
Strong, pandemic-induced demand for housing is still there, but buyers may now be hitting an affordability wall.
Pending home sales fell 1.1% month to month in October but were 20.2% higher compared with October 2019. This reading is a measure of signed contracts on existing homes, so it is a future indicator of closed sales.
It is also, therefore, a more recent read on buyer activity because it represents people out shopping during the month and making purchase decisions. Analysts expected a small monthly gain.
“The housing market is still hot, but we may be starting to see rising home prices hurting affordability,” Lawrence Yun, chief economist for the National Association of Realtors, said in a release.
Mortgage rates hovered near historic lows during the month, but the supply of homes for sale also hit another historic low. The number of homes for sale at the end of October was down nearly 20% annually and represented just a 2.7-month supply at the current sales pace. A six-month supply is considered a balanced market between buyer and seller.
The growing imbalance has prompted bidding wars and caused the median price of an existing home to jump to the highest level ever in October, according to the Realtors. At $313,000, it was up 16% annually. Supply is especially lean on the low end of the market.
“The combination of these factors – scarce housing and low rates – plus very strong demand has pushed home prices to levels that are making it difficult to save for a down payment, particularly among first-time buyers, who don’t have the luxury of using housing equity from a sale to use as a down payment,” said Yun.
Regionally, pending home sales were mixed. In the Northeast, they fell 5.9% for the month but were up 18.5% from a year ago. In the Midwest, sales fell 0.7% monthly but rose 19.6% annually.
Pending home sales in the South increased 0.1% from September and were up 21.0% from October 2019. Sales in the West were flat for the month and up 20.8% from a year ago.
With the supply of existing homes so low, sales of newly built homes benefited. They were up more than 40% compared with October 2019, according to the U.S. Census. Builders, however, are now having the same issue as the existing market. Supply is way down, and the number of homes sold that hadn’t been started yet was up over 90% annually.