November pending home sales were unchanged, despite a sharp drop in mortgage rates

In November, pending home sales remained unchanged compared to October, but marked a 5.2% decrease from the same month in the previous year, as reported by the National Association of Realtors (NAR). This indicator, based on signed contracts during the month, offers insights into both closed sales and the current sentiments of potential homebuyers.

Mortgage rates played a pivotal role in shaping the real estate landscape during this period. The average rate on the 30-year fixed mortgage experienced a notable increase, surging over 8% in mid-October before subsequently dropping to 7.5% in the first week of November, according to Mortgage News Daily. By the end of November, it had settled around 7.25%.

Despite expectations that the decline in mortgage rates would trigger a modest uptick in pending sales, this did not materialize. The housing market faces challenges such as elevated home prices and limited supply, which appear to have tempered the impact of declining mortgage rates. Lawrence Yun, NAR’s chief economist, noted that while lower mortgage rates did not prompt a significant increase in formal contracts in November, they did stimulate interest, as evidenced by a rise in the number of lockbox openings.

Regionally, pending sales experienced a 0.8% month-over-month increase in the Northeast and a 0.5% uptick in the Midwest. The West, where home prices are highest and a decrease in mortgage rates would have the most significant impact, saw a stronger gain of 4.2%. Conversely, the South recorded a 2.3% decline in pending sales. In comparison to the same month in the previous year, pending sales were lower across all regions in November 2023.

While mortgage rates have now stabilized in the mid-6% range, the supply of homes for sale remains constrained. Builders are increasing production, but new homes often come with a price premium. Existing home prices continue to rise, contributing to the overarching affordability challenge in the market.

Looking ahead, Lawrence Yun remains optimistic about the prospects for the housing market in 2024, citing the further decrease in mortgage rates in December, which could result in savings of approximately $300 per month compared to the recent cyclical peak. This reduction in rates is anticipated to contribute to an improvement in home sales in the coming year.