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The housing market has been hot in 2020, and low mortgage rates have largely driven that trend. In fact, with the average 30-year fixed mortgage rate sitting well below 3% since summertime, it's easy to see why prospective buyers have clamored for homes.
But things changed a bit in October. Pending home sales fell 1.1% from September, and while that figure was still 20.2% higher than in October of 2019, it represents a month-to-month decline.
Why did pending home sales drop?
The term "pending home sales'' means the number of signed contracts on existing homes. Or, to put it another way, it's a measure of the sales that close on a monthly basis.
Pending home sales also indicate buyer activity, and this new data tells us that fewer buyers sought out homes in October compared to the previous month. What it doesn't tell us, however, is why. But based on what we know about the housing market, it's easy to venture a few guesses.
First, home prices have been exceptionally high in recent months. Low mortgage rates coupled with low inventory have fueled buyer demand, and when there's high demand and limited supply, we all know what happens -- prices climb. In October, the median U.S. home price was $313,000, a 16% increase from a year before. With numbers like that, buyers may finally be saying no to overpaying for homes, fueling the decline.
Furthermore, many people may have opted not to buy in October as the pandemic worsened and election-related uncertainty raised stress and distraction. Both of those factors likely compounded the home pricing issue. It'll be interesting to see if November's pending home sales are higher now that the election issue is resolved, though the pandemic has gotten worse in terms of new cases recorded.
Should you consider buying a home now?
Buying a home right now could mean taking advantage of record-low mortgage rates. But it could also mean paying more for a home, not to mention dealing with stress on the road to getting an offer accepted -- because homes are in such limited supply, a lot of buyers get stuck in bidding wars, and it's a tough spot to be in.
While mortgage rates are attractive right now, there's a good chance they'll stay that way well into 2021, and probably beyond. Therefore, it could make sense to sit tight on a home search and see if inventory opens up in the coming year. This especially holds true as we head into the winter season, which has historically been slower for real estate transactions. More inventory on the market come springtime could lead to lower buyer demand and lower prices, so for today's buyers, patience could be the key to major savings.
Finally, if things improve on the pandemic front in 2021, touring homes could become easier. And that, too, is reason enough to sit tight and give the market time to equalize, so it no longer favors sellers to such an extreme.
