Something to be thankful for: Pending sales up, rates dip
Buyers found a bit of relief last month, leading to more sales activity — but rising inflation is lurking heading into the holidays.
Key points:
- Pending sales were up for the third consecutive month despite elevated mortgage rates.
- Improved affordability and inventory are contributing to more homebuying activity.
- New home sales are down, however, and inflation appears to be on the rise. That could lead the Fed to slow or pause rate cuts.
This week's economic data provided some good (and a bit of not-so-good) news for real estate agents looking to finish 2024 on a positive note.
Perhaps the most encouraging report came from the National Association of Realtors, which reported Nov. 27 that pending home sales increased for the third consecutive month in October, rising 2% compared to September. Year-over-year, sales were up 5.4% as homebuyers appeared to shrug off rising mortgage rates and the uncertainty of the presidential election.
"Despite ongoing affordability challenges, buyers found relief in higher inventory and a resilient labor market," said Odeta Kushi, deputy chief economist at First American.
Affordability is still a concern, but compared to a year ago — when mortgage rates hit their 2023 peak of around 7.8% — it has improved 11%, noted Mark Fleming, chief economist at First American, who noted that household incomes are also up.
Mortgage rates dip
Mortgage interest rates declined slightly this week, according to Freddie Mac's weekly survey, which put the 30-year fixed-rate mortgage at 6.81%, down from 6.84%.
The relative stability may be a sign that the market is waiting for more clarity on specific economic policies following the election, said Sam Khater, Freddie Mac's chief economist.
In the meantime, some homebuyers are moving forward with home purchases, said Lisa Sturtevant, chief economist at Bright MLS.
"While borrowing costs are definitely on the minds of most buyers, the decision about buying a home is based on more than just financial considerations," Sturtevant said. "'Life happens' events will eclipse mortgage rates for some individuals and families."
That seems to be reflected in mortgage applications, which increased 6.3% this week, led by a surge in purchase filings, according to the Mortgage Bankers Association.
"With the growth in for-sale inventory and signs that the economy remains strong, buyers have remained in the market even though rates have increased recently," said Joel Kan, MBA's deputy chief economist.
Winter is coming
While the industry can be thankful for an uptick in pending sales, other economic data serves as a reminder that headwinds remain, both for real estate and the economy at large.
Case in point: New home sales plummeted 17.3% between September and October and were down 9.4% year-over-year, according to the U.S. Census Bureau.
Supply of existing homes was a factor, Sturtevant said. "When existing home inventory was at a record low, some buyers had no other option but a new home. Now, however, buyers have more options. As a result, new home sales could continue to be sluggish through the rest of 2024," Sturtevant said.
Another downer heading into the holiday season? Inflation is ticking back up. The Personal Consumption Expenditures Price Index, which the Federal Reserve watches closely, rose 0.2% last month to 2.3%.
That uptick could be enough to convince the Fed to pause rate cuts when it meets in December, which could in term keep mortgage rates elevated.