Pending Home Sales Unexpectedly Fall as Shortage of Homes Pushes Up Prices

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Remember when you couldn’t buy toilet paper because so many people had stocked up on supply going into the lockdowns?

Something close to that is now occurring in the housing market.  Pending homes sales, which are based on contracts to buy previously owned homes, fell for a second straight month in October as would-be buyers were stymied by high prices and short supply.

The National Association of Realtors said on Monday its Pending Home Sales Index fell 1.1 percent to 128.9. Economists polled by Econoday had forecast pending home sales would rebound 2 percent after declining in September.

Despite the decline, homes are selling at much faster pace than a year ago. Compared to last October, pending homes sales are up 20.2 percent.

“Pending home transactions saw a small drop off from the prior month but still easily outperformed last year’s numbers for October,” said Lawrence Yun, NAR’s chief economist. “The housing market is still hot, but we may be starting to see rising home prices hurting affordability.”

Pending sales are measured when contracts are signed and typically lead to closings 45 to 60 days later. So these will be December closings, which show up in the data as “existing home sales.” The monthly decline indicates a likely retreat in sales of existing home sales after they soared in October to their highest level since November 2005.

Buyers are facing an sharp shortage of homes for sale. Compared with a year ago, the number of homes for sale in October was down 20 percent. This represented a 2.7 month supply of houses at the current pace, well below the 4 to 6 months supply that is typical.

The shortage of homes relative to demand has sent prices soaring. Existing home prices were up 16 percent nationwide, led by a 21.7 percent increase in the Northeast.

“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. “Work-from-home flexibility has also increased the demand for both primary and secondary homes.”

The Northeast pending home sales index slid 5.9 percent to 112.3 in October, a 18.5 percent increase from a year ago. In the Midwest, the index fell 0.7 percent to 119.6 last month, up 19.6 percent from October 2019.

Pending home sales in the South rose one-tenth of a percentage point to an index of 151.1 in October, up 21.0 percent from October 2019. The index in the West remained the same in October, at 116.8, which is up 20.8 percent from a year ago.

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