Buyers stampeded into the housing market in October as mortgage rates climbed and prices hit record highs.
The National Association of Realtors (NAR) said on Monday that its Pending Home Sales Index, which is based on signed contracts that become closed sales in 45 to 60 days, rose 7.5 percent last month to 125.2. Pending home sales increased in all four regions of the U.S.
Economists had expected a much smaller gain of just 0.7 percent, according to Econoday. Sales in September were revised to show a 2.4 percent decline from August.
Compared with last year, pending sales were down 1.4 percent. But that was peak buying due to the flight to the suburbs triggered by the lockdowns of schools and many work places, the shuttering of urban amenities, rioting in many cities, soaring murder rates, and “mostly peaceful” anti-police protests.
Mortgage rates moved up significantly in October, rising from three percent in mid-September to 3.22 percent at the end of October. Typically, rising rates can depress buying because the higher rates hurt home affordability, especially when coupled with the record high prices seen in many housing markets.
News about high and rising inflation and anticipation of the Federal Reserve removing accommodation by tapering its bond-buying program may have prompted some would-be buyers to make offers to avoid even higher rates and prices in the future.
In addition, sharp increases in rents in recent months and the likelihood of even further hikes in the future may have prompted some households to lock in residential costs now by buying a home.
“Motivated by fast-rising rents and the anticipated increase in mortgage rates, consumers that are on strong financial footing are signing contracts to purchase a home sooner rather than later,” said Lawrence Yun, NAR’s chief economist. “This solid buying is a testament to demand still being relatively high, as it is occurring during a time when inventory is still markedly low.
Yun forecasts home prices will rise at a gentler pace over the course of the next several months and expects demand to be milder as mortgage rates increase. Total home sales for 2021 are expected to reach the highest level since the pre-Great Recession housing bubble peak.
“The notable gain in October assures that total existing-home sales in 2021 will exceed 6 million, which will shape up to be the best performance in 15 years,” Yun said.
Supply shortages may also be indirectly contributing to the demand for housing. Because many big-ticket items, such as new cars and trucks, have been unavailable, households have extra-savings for downpayments.