U.S. pending home sales fall 1.1% in October as higher prices discourage buyers

A real estate sign is seen in front of a house for sale in West Los Angeles. The U.S. real estate market is booming, but a shortage of homes for sale is starting to bit into sales.

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The numbers: A measure of pending home sales fell in October for the second month in a row, signaling the surprisingly strong surge in demand during the pandemic might be ebbing.

The index of pending home sales dropped 1.1% in October after a 2.2% decline in September, the National Association of Realtors said Monday.

While pending sales are still up 20% compared to a year earlier, rising home prices could be cutting into demand. Cooler weather and a record increase in U.S. coronavirus cases might also be hurting sales.

The index measures real-estate transactions in which a contract is signed, but the sale had not yet closed.

What happened: The South was the only major region to post an increase in pending sales, though just barely.

Pending sales posted the biggest decline in the Northeast.

The big picture: Record low mortgage rates and an increase in families leaving cities to escape the coronavirus have boosted home sales during the pandemic, leading to a flush in spending on furnishings and other related goods. The housing market has been a surprising bright spot for the economy.

Yet the spike in demand has reduced the inventory of homes for sale, which were already in short supply, to a historic low. That’s pushed up prices, discouraged would-be buyers — and could lead to softer sales in the future.

What they’re saying:  “The housing market is still hot, but we may be starting to see rising home prices hurting affordability,” said Lawrence Yun, NAR’s chief economist

Market reaction: The Dow Jones Industrial Average

and S&P 500

both fell in Monday trades.

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