Contract signings for US existing homes remained unchanged in November from the previous month even as mortgage rates scaled back from 23-year highs.
The index for pending home sales stayed at 71.6 in November, the National Association of Realtors (NAR) released Thursday. The index reading was the lowest since the index’s founding in 2001. An index level of 100 is equal to the pace of contract activity in 2001.
The results were below the 0.9% increase that economists polled by Bloomberg had estimated.
The lack of change in the index, an early indicator of the housing market’s health, shows how some buyers may be hesitant to reenter the market despite the dip in mortgage rates last month. It may also reflect seasonal trends, as some buyers opt to wait until the holidays are over to return to their purchase plans.
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Overall activity in the resale market remained below year-ago levels with pending transactions down 5.2%.
“Although declining mortgage rates did not induce more homebuyers to submit formal contracts in November, it has sparked a surge in interest,” Lawrence Yun, NAR chief economist, said in a press statement. “With mortgage rates falling further in December – leading to savings of around $300 per month from the recent cyclical peak in rates – home sales will improve in 2024.”
‘Mortgage rates will be an important determinant’
As mortgage rates pulled away from multi-decade highs last month, homebuyer affordability showed modest signs of improvement.
After peaking at 7.79% in October, the average rate on the 30-year fixed mortgage fell from 7.76% in the first week of November to 7.22% in the last one, according to Freddie Mac. Since then, rates have fallen over a full percentage point from October’s peak.
The dip in rates over the last month came as signs of cooling inflation continued to convince investors that the Federal Reserve would pause its aggressive rate hike campaign in December.
The yield on the 10-year Treasury – which fixed-mortgage rates track – had brushed 5% in October and dipped back to 4.47% by mid-November. It has dropped even further since, as the Fed decided to pause rate hikes during its December meeting before signaling up to three rate cuts next year.
Read more: What the Fed rate-hike pause means for loans and mortgages
That translated to slightly better mortgage payments for some folks on the market.
“With home prices likely to remain high, mortgage rates will be an important determinant of both affordability and overall activity,” Realtor.com chief economist Danielle Hale said.
For instance, homebuyers taking out a conventional purchase loan in November had an average monthly cost of $2,137, down $62 from October, according to a separate survey by the Mortgage Bankers Association (MBA). Meanwhile, FHA applicants paid an average of $1,902 in November, down from $1,995 in October.
Overall, the average monthly payment for conventional loans was still up from $1,994 a year ago, the MBA noted, as rates are only part of the equation. That much was evident in the latest pending home sales data.
“Lower mortgage rates don’t fix all the troubles in the housing market,” Keith Gumbinger, vice president of HSH.com, previously told Yahoo Finance. “While they do help with affordability, they do little to increase the number of homes for sale in the market (which has throttled sales activity despite high financing costs), and the increase in buyer demand that lower rates may bring at the margins will likely serve to press home prices higher.”
Month-over-month contract signings in the West and Midwest increased by 4.2% and 0.5%, respectively. Meanwhile, in the Northeast, the index rose just 0.8% month over month. The South, however, saw pending home sales contract by 2.3% from October. Overall, all four regions registered year-over-year declines in transactions.
“Home sales activity could register better than expected if mortgage rates are able to hold on to the improvement garnered in the last two months, which has been faster than anticipated,” Hale said in a press statement, before noting that pending home sales tend to lead existing home sales by roughly one to two months.
Listings improved, but inventory remains scarce
After a 17-month streak of declining listing activity, home sellers were more active in November, Realtor.com found. The number of newly listed homes was 7.5% above year-ago levels last month, offering a boost to inventory.
The number of homes actively on sale also rose by 0.7% on average in November, marking an end to a four-month streak of declines. Overall, inventory in November increased 2.4% from the month prior, the first time inventory has increased so late into the year since Realtor.com started the series in 2016.
Still, active inventory remained 37.8% below typical 2017 and 2019 levels, Realtor.com found, and that gap will continue to challenge sales entering the new year.
Economists at Realtor.com expect rates to exceed 6.5% in 2024, resulting in a lock-in effect for homeowners that already have lower rates. Roughly two-thirds of outstanding mortgages have a rate under 4%, and more than 90% have a rate under 6%.
That shortage of inventory, however, coupled with pent-up demand could result in increased transactions in 2024. That may also have some consequences, warned Gumbinger.
“The drop in rates makes it more likely that prices will start heading higher earlier than normal in 2024,” Gumbinger said, “and higher prices will erase some of the benefit of lower mortgage rates.”
Gabriella is a personal finance and housing reporter at Yahoo Finance. Follow her on X @__gabriellacruz.
