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Pending home sales rebound in October

Home sales in the U.S. will likely remain strong through the fall.

Pending home sales, a leading indicator of the health of the housing market, jumped in October, a stark reversal from the decline a month earlier and far outpacing expectations. The National Association of Realtors’ (NAR) Pending Home Sales Index, which tracks the number of homes that are under contract to be sold, rose 7.5% in October from September. Analysts expected a paltry 0.8% increase in sales, according to Bloomberg consensus estimates.

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“Motivated by fast-rising rents and the anticipated increase in mortgage rates, consumers that are on strong financial footing are signing contracts to purchase a home sooner rather than later,” said Lawrence Yun, NAR’s chief economist, in a statement. “This solid buying is a testament to demand still being relatively high, as it is occurring during a time when inventory is still markedly low.”

Total housing inventory at the end of October hit 1.25 million units, down 0.8% from September and down 12.0% from one year ago (1.42 million). Unsold inventory sits at a 2.4-month supply at the current sales pace, equal to September’s supply, and down from 2.5 months in October 2020.

"The consensus always looked timid, given the tendency for pending home sales this year to overshoot relative to mortgage applications, but this is stronger than we hoped to see," said Pantheon Macroeconomics in a statement. "The overshoot presumably reflects the rising share of investors and other cash buyers over the past year; this can’t last forever, but in the meantime it points to November existing home sales rising about the 6.5M mark, for the first time since January. Easier lending standards and rebounding payrolls are boosting demand, but mortgage rates are likely to rise a bit over the next couple months, so we’d be surprised to see mortgage applications returning to the late 2020 peak."

Activity increased month-over-month across all four regions of the U.S. The Midwest and South led pending home sales, recording an increase of 11.8% and 8%, respectively, in October. Activity in the Northeast rose 6.9% and in the West increased 2.1%. As expected, pending home sales was down 1.4% from the same month last year, when activity was heightened due to pent-up COVID-19 demand for housing.

"Contract signings reflected a changing market in October. As we moved into the fall, housing remained competitive, with tight inventory and a quick turnover pace, even as mortgage rates rose 15 basis points over the month,” said George Ratiu, manager of economic research for Realtor.com, in a press statement prior to the results.

In October, existing home sales rose at a slower pace of 0.8% from September, according to the NAR. But the latest pending home sales results signal that activity will likely continue at a healthy pace through the fall season.

“The notable gain in October assures that total existing-home sales in 2021 will exceed 6 million, which will shape up to be the best performance in 15 years,” Yun said.

Amanda Fung is an editor at Yahoo Finance.

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