Homebuyers -- investors and homeowners alike -- appear to have rushed back into the market in October, adding fuel to the fiery competition that has seen home prices soar to record levels and beyond in many U.S. markets.
The National Association of Realtors (NAR) said on Nov. 29 that one of its key leading indicators -- its Pending Home Sales Index (PHSI) -- rose 7.5% in October, reversing a September dip.
"Pending home sales" means a contract has been signed but the transaction hasn't closed. The NAR says its PHSI now stands at 125.2, with 100 equaling the level of contract activity in 2001. Signings were still down 1.4% from October 2020, but the sudden jump is deemed significant.
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2021 projected to end with highest existing-home sales tally in 15 years
The trade group's chief economist, Lawrence Yun, cites fast-rising rents and expectations of rising mortgage rates as motivating able homebuyers to buy a home sooner than later. He says it's also a testament to demand remaining relatively high while supply is still markedly low.
There's now a 2.4-month supply of available homes on the market, down from 2.5 months at this time last year, the NAR says, and the median sales price has surged to $353,900, up 13.1% from October 2020.
Yun also says that the "notable gain" in October assures existing-home sales in 2021 will surpass 6 million, projecting a tally of 6.34 million that would be the highest in 15 years.
The NAR says that among the nation's largest metros, the biggest year-over-year gains in pending sales were in three Florida markets -- Orlando-Kissimmee-Sanford, Jacksonville, and Tampa-St. Petersburg-Clearwater -- as well as Dallas-Fort Worth-Arlington in Texas and Nashville-Davidson in Tennessee.
By region, the Midwest and South led the way in contract signings, with the Midwest rising 11.8% to 124.6 and the South up 8% to 149.7 from September. Both are ahead of last year's October indexes.
The West region saw an index growth of 2.1% in October to 107.5, down 6.2% from a year ago, while the Northeast PHSI grew 6.9% to 99.5 in October, down 10% from a year ago and the only region with a PHSI indicating slower sales activity than at this point 20 years ago.
Higher mortgage rates to yield a "gentler pace" in price inflation and "milder" demand
If you do expect prices and interest rates to keep rising -- and the deal and timing is right -- now is a great time to take that investment plunge. However, Yun, the NAR economist, says he expects the market to remain robust but home prices to rise at a "gentler pace" and demand to be "milder" as mortgage rates increase over the next several months.
Such easing has been projected for a while now, and compared to the torrid numbers from last fall, declines in demand, increases in supply, and slowing price acceleration can show up in those metrics pretty easily.
How much that changes the equation for real estate investors ultimately depends on so much more, with each market responding in its own way to multiple factors, including interest rates, new home construction, the local economy, the impact of big buyers like the single-family rental real estate investment trusts (REITs), and -- ultimately -- whether the coronavirus pandemic ramps up its pounding of public health and confidence because of the omicron variant.
