November Pending Home Sales Unaffected by Sharp Mortgage Rate Drop

In November, pending home sales remained steady compared to October but showed a 5.2% decline from last year, according to the National Association of Realtors (NAR). Despite a significant drop in mortgage rates, which fell from over 8% in mid-October to around 7.25% by month-end, the expected uptick in pending sales did not materialize. Lawrence Yun, NAR’s chief economist, noted that although lower mortgage rates didn’t lead to increased formal contracts in November, there was a notable surge in interest, as seen in higher lockbox openings.

Regionally, pending sales increased by 0.8% in the Northeast and 0.5% in the Midwest, while the West experienced a more robust 4.2% gain. In contrast, the South saw a 2.3% decline. Despite mortgage rates stabilizing in the mid-6% range, the limited housing supply persists, influencing existing home prices to continue their upward trend. Yun anticipates that with further declines in mortgage rates in December, potentially saving around $300 per month compared to recent peaks, home sales will see improvement in 2024.

Homebuyer Relocations at 18-Month Low

The latest data from Redfin reveals a notable decline in the percentage of homebuyers choosing to relocate, hitting an 18-month low. Between September and November, only 23.9% of homebuyers opted for relocation, marking the first annual drop in relocation rates since Redfin began recording data in 2017. Strained affordability, driven by high mortgage rates and substantial payments, is a crucial factor, along with employer constraints on remote work despite the pandemic fostering increased consideration of relocations.

The report also highlights a shift in the most popular migration destinations, with Los Angeles topping the list of metros where buyers are looking to leave, followed by San Francisco and New York. Despite this trend, migration rates still surpass pre-pandemic levels, reflecting a continued search for affordability, as the top 10 migration destinations boast lower home prices than the most common origin for relocating buyers.

Home Sales Gain Momentum for 2024

Existing-home sales rose by 0.8% in November, marking a break in the five-month decline and hinting at a more favorable real estate market in 2024, according to the National Association of REALTORS®. Lawrence Yun, NAR’s chief economist, anticipates further growth in the coming months as borrowing costs decrease, with mortgage rates averaging 6.95%. However, November’s existing home sales were 7.3% lower than the previous year, and rising home prices, reaching a median of $387,600, continue to strain buyers’ budgets. A significant increase in supply is seen as essential to tempering price appreciation.

Despite the limited housing options and homeowners’ reluctance to sell due to locked-in low mortgage rates, homebuilders are increasing construction efforts. Single-family home construction surged by 18% in November, up 42% from a year earlier, as reported by the Commerce Department. With builders offering incentives such as lowered interest rates and co-op commissions, the industry aims to address the housing shortage. Homebuilders predict a 4% rise in single-family starts in 2024, counting on lower mortgage rates and reduced inflation in the new year, according to Robert Dietz, chief economist at the National Association of Home Builders. Bidding wars persist, with 62% of properties selling in less than a month, and resilient buyers, including first-time buyers and cash buyers, contribute to the market’s strength, particularly in the South and Midwest. NAR identifies markets in these regions, such as Austin and Dallas-Fort Worth, as having significant pent-up demand in 2024.

Source:

Vaimberg, Ron. “Weekly Newsletter – January 6, 2023.” Ron Vaimberg International, Ron Vaimberg, 6 Jan. 2023, https://rvionline.thinkific.com/courses/take/rvi-weekly-newsletter/texts/41523497-weekly-newsletter-january-6-2023.