In October, there was an increase in home sales due to a drop in mortgage rates.
The National Association of Realtors reported a 3.4% rise in sales of previously owned homes compared to September, reaching a seasonally adjusted annualized rate of 3.96 million units. This represents a 2.9% increase compared to the previous year, marking the first annual growth in home sales in over three years.
The surge in activity is attributed to contracts signed during August and September when the average rate for a 30-year fixed mortgage fell from approximately 6.6% to a low of 6.11%. Lawrence Yun, the chief economist of the National Association of Realtors, believes that the worst of the downturn in home sales may be over, as increasing inventory is likely to facilitate more transactions. However, he emphasized the importance of mortgage financing for first-time homebuyers, who continue to face elevated rates.
The housing inventory at the end of October stood at 1.37 million units, reflecting a 19.1% increase from the previous year. This corresponds to a 4.2-month supply at the current sales pace, which is lower than the balanced market requirement of a 6-month supply. The tight supply has led to an increase in home prices, with the median price of existing homes sold in October reaching $407,200, a 4% increase from the previous year.
The higher end of the market is experiencing more activity compared to the lower end, indicating a shift in buyer preferences. The market still requires an additional 30% in inventory to return to pre-COVID conditions.
The share of all-cash buyers has decreased to 27%, down from 29% in the previous year, suggesting that lower mortgage rates may have contributed to this decline. First-time buyers accounted for 27% of sales, slightly lower than the previous year and significantly below the historical average of 40%.
Following the recent elections, there has been a resurgence in buyer interest, with the demand index from Redfin rising by 17% year-over-year during a one-week period in mid-November. This increase in potential buyers contacting agents is seen as a response to pent-up demand from individuals waiting for the election results and for the Federal Reserve to potentially cut interest rates again.
The dynamics of the housing market are closely tied to broader economic indicators, and the interplay between interest rates, buyer sentiment, and inventory levels will be crucial in determining the market's trajectory in the coming months.