Home marked “sold” from a real estate company in North Patchogue, New York.
Steve Pfost | Newsday | Getty Images
A sharp drop in mortgage rates sent homebuyers off the fence in October after a slow summer.
Sales of previously owned homes last month rose 3.4% from September to a seasonally adjusted annual rate of 3.96 million units, according to the National Association of Realtors. Sales rose by 2.9% compared to October last year, the first annual increase in more than three years.
This number is based on signed contracts, meaning that most deals took place in August and September. During that period, the average interest rate on a 30-year fixed mortgage was declining. August began at around 6.6% and dropped to a low of 6.11% by mid-September, according to Mortgage News Daily.
“The worst of the decline in home sales may be over, with increased inventory leading to more transactions,” Lawrence Yun, chief economist at NAR, said in a statement. “Incremental job gains and continued economic growth appear assured, resulting in growing demand for housing. However, for most first-time homebuyers, mortgage financing is critical. While mortgage rates remain high, they are expected to stabilize.”
There were 1.37 million units on sale at the end of October, an increase of 19.1% from October 2023. This puts inventory at a 4.2-month supply at the current sales pace. It's still on the slimmer side, with a six-month offer balanced between buyer and seller.
Supply shortages continue to put upward pressure on prices. The median price of an existing home sold in October was $407,200, an increase of 4% from the previous year. Depending on the price category, the higher end of the market sees more activity than the lower end.
“We still need another 30% of inventory just to get us back to pre-Covid conditions,” Yoon said.
The share of cash buyers fell to 27%, from 29% in October 2023. This is still historically high, but lower mortgage rates have likely caused this share to decline.
First-time buyers accounted for 27% of sales, down from 28% the previous year and still historically low. They usually make up 40% of sales.
Mortgage rates are now much higher, at 7.05% over 30 years. However, a new report from Redfin showed a recent spike in the number of potential buyers contacting its agents, especially after the election. The so-called demand index rose 17% year-on-year during a one-week period in mid-November to the highest level since August 2023.
“The influx of buyers and sellers into the market is the result of pent-up demand from people who were waiting for the election to pass and the Fed to cut interest rates for the second time,” said Chen Zhao, an economic researcher at Redfin. Driving. “We are now closely monitoring whether this is a short post-election boom, or whether it translates into a steady improvement in pending sales.”
