Economic Report: Pending home sales surge higher in October — will the omicron variant trip up the real-estate market?
The numbers: Contract signings jumped
The number of home buyers who signed a contract to purchase a home in October increased markedly, far exceeding economists’ expectations.
Pending home sales rose 7.5% in October compared with September, the National Association of Realtors reported Monday. Economists polled by MarketWatch had projected a 0.7% increase for pending home sales in October.
Compared with last year, pending sales were down 1.4%, reflecting how much home-buying activity has cooled from the breakneck pace of 2020.
The pending home sales index measures real-estate transactions where a contract was signed for a previously-owned home, but the sale had yet to close, and it is benchmarked to contract-signing activity in 2001. The index provides insight as to the direction existing-home sales figures will take in the months to come, which is based on closed transactions.
“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,” Lawrence Yun, chief economist for the National Association of Realtors, said in a report. “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.”
Every region saw an increase in sales, led by an 11.8% gain in the Midwest, the report noted. Yun added that the report solidified projections that existing home sales will exceed an annual rate of 6 million for 2021.
The big picture
The pending home sales report for October likely helps to explain some of what was in the October existing-home sales report that was released last week. There was a decline in pending-home sales in September, but existing home sales rose in October. Many economists were surprised by the increase in existing home sales in October as a result, because the pending home sales report is generally an indicator of existing sales, since it records when contracts are signed, while existing-home sales reflects when transactions are closed.
While sales are still happening at a fast pace, especially for the fall, most economists expect that momentum will slow next year, particularly if mortgage rates increase as expected.
In the near term, the forward trajectory for the housing market may be dependent on what happens with the omicron variant of the virus that causes COVID-19. It is still not known how transmissible the new variant is, nor whether it increases the likelihood of more severe cases of COVID-19 that could result in hospitalization or death. If the variant is shown to be a larger threat — and if it evades the protections offered by vaccines — there could be a reintroduction of policies aimed at curbing the rate of infections.
The real-estate industry has adapted in many ways to provide more flexibility, so it is unlikely that there would be a slowdown similar to the one that happened at start of the pandemic. However, if the new variant weighs on consumer confidence, that could cause some would-be buyers to second guess their decision to purchase a home.
What they’re saying
“As we moved into the fall, housing remained competitive, with tight inventory and a quick turnover pace, even as mortgage rates rose 15 basis points over the month,” said George Ratiu, manager of economic research for Realtor.com. “Real estate markets have left the overheated spring 2021 behind, as an increase in the number of homeowners ready to move forward with pandemic-delayed plans boosted new listings and tamed skyrocketing price growth.”