Pending home sales increased in October, rebounding after a decline the month prior, according to the National Association of Realtors. Contract activity rose month-over-month in each of the four major U.S. regions. On a year-over-year basis, however, transactions were split, as two regions reported drops and two others posted gains.
The Pending Home Sales Index (PHSI), a forward-looking indicator of home sales based on contract signings, rose 7.5% to 125.2 in October. Year-over-year, signings fell 1.4%. An index of 100 is equal to the level of contract activity in 2001.
“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 in a news release. “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.
“The notable gain in October assures that total existing-home sale in 2021 will exceed 6 million, which will shape up to be the best performance in 15 years.”
While the market is expected to remain robust, Yun forecasts home prices will rise at a gentler pace over the next several months and expects demand to be milder as mortgage rates increase.
Realtor.com’s Hottest Housing Markets data revealed that out of the largest 40 metros, the most improved metros over the past year, as of November 18, were Orlando-Kissimmee-Sanford, Fla.; Jacksonville, Fla.; Tampa-St. Petersburg-Clearwater, Fla.; Dallas-Fort Worth-Arlington, Texas; and Nashville-Davidson, Tenn.
October Pending Home Sales Regional Breakdown
Compared to the previous month, contract signings rose at the strongest pace in the Midwest and South regions. Month-over-month, the Northeast PHSI increased 6.9% to 99.5 in October, a 10% drop from a year ago. In the Midwest, the index climbed 11.8% to 124.6 last month, up 5.1% from October 2020.
Pending home sales transactions in the South rose 8.0% to an index of 149.7 in October, up 0.6% from October 2020. The index in the West grew 2.1% in October to 107.5, down 6.2% from a year prior.
*The Pending Home Sales Index is a leading indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within one or two months of signing.
Pending contracts are good early indicators of upcoming sales closings. However, the amount of time between pending contracts and completed sales are not identical for all home sales. Variations in the length of the process from pending contract to closed sale can be caused by issues such as buyer difficulties with obtaining mortgage financing, home inspection problems, or appraisal issues.
The index is based on a sample that covers about 40% of multiple listing service data each month. In developing the model for the index, it was demonstrated that the level of monthly sales contract activity parallels the level of closed existing-home sales in the following two months.
An index of 100 is equal to the average level of contract activity during 2001, which was the first year to be examined. By coincidence, the volume of existing-home sales in 2001 fell within the range of 5.0 to 5.5 million, which is considered normal for the current U.S. population.