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The latest data from the National Association of Realtors (NAR) reveals that November pending home sales in the United States remained stagnant, showing no change compared to October and a 5.2% decline from the same month the previous year. Despite a sharp drop in mortgage rates, the real estate market faces challenges, including soaring home prices and a persistent shortage of available homes for sale.
In mid-October, the average rate on the 30-year fixed mortgage surged above 8%, only to experience a rapid decline to 7.5% in the first week of November, according to Mortgage News Daily. The month ended with rates hovering around 7.25%. Although this significant drop in mortgage rates sparked a surge in interest, it did not translate into an increase in formal contracts for home purchases in November.
Lawrence Yun, the chief economist at NAR, noted, “Although declining mortgage rates did not induce more homebuyers to submit formal contracts in November, it has sparked a surge in interest, as evidenced by a higher number of lockbox openings.”
Analysts had anticipated that the drop in mortgage rates would lead to a slight gain in pending sales. However, the challenges posed by steep home prices and a tight supply of available homes seem to have offset the potential impact of lower interest rates.
Regionally, pending home sales exhibited mixed results. The Northeast and Midwest saw modest increases of 0.8% and 0.5%, respectively. In the West, where home prices are highest and mortgage rate changes have a more substantial impact, pending sales made a stronger gain of 4.2%. On the contrary, the South experienced a 2.3% decline in pending sales. Comparing November 2023 to the same month in the previous year, pending sales were lower across all regions.
While mortgage rates have now stabilized in the mid-6% range, the persistent shortage of homes for sale continues to be a significant factor affecting the real estate market. Builders are increasing production, but the supply of new homes comes at a premium. Existing home prices continue to rise, creating additional challenges for potential buyers.
Looking ahead, Lawrence Yun expressed optimism for the future, stating, “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.” Despite the current challenges, the real estate market anticipates positive changes in the coming year as mortgage rates continue to trend downward.