Contract signings just fell to the lowest level the National Association of Realtors has ever recorded. The culprit comes with a number attached: seven percent.
Pending home sales forecast where the market is headed. The latest reading is of some concern. Were inventories at the higher 2019 levels, it would be of greater concern, but due to higher mortgage rates and lower inventories, such metrics have to be weighed.
The National Association of Realtors (NAR) reports that pending sales fell 7.3% in September from the month before and 11.3% from a year earlier, making this the lowest point since the association began tracking the figure in 2001.
Seven Percent Rates Holding Back Buyers
The driver in this market is the mortgage rates, which have surged, as well as spiking oil prices. A rate determines the monthly payment, and as rates have slowly climbed above the 7% threshold, fewer buyers were able to find affordable homes with affordable monthly mortgage payments. Causing many buyers were forced to walk away, hoping for a rate turnaround.
Builders are also reporting that buyer traffic has dropped to a 14-year low, another sign that the pullback is reaching across the whole real estate market.
A Virginia agent, Chris Colgan, told MarketWatch about a client who was shopping when rates moved from 7% to 7.5%, which would have added roughly $400 to the monthly payment. The buyer had no choice but to walk away until the rates came more in line with their budget.
But the agent remained proactive and called five different lenders, and one came back with 7.25% on a 30-year loan. The buyers are now under contract. The lesson is simple and worth repeating: the first quote you get is not the only quote you can get. What is happening between buyers and sellers right now looks a lot like a standoff. But buyers are not the only ones affected by this financial distancing. Sellers are fielding lowball offers and coming to terms with the idea that their expectations may need to move.
Buyers are advised to continue to shop your lender, compare real quotes from several sources, and judge a home by the monthly payment it creates. A quarter point can make all the difference in the world in this pressured market. A home that is priced realistically still gets attention when the pool of buyers shrinks. A home that is not gets passed over. The agent’s true value rises in markets where the fiscal dynamics get more complicated.
Sources: National Association of Realtors pending home sales data, as reported by CNBC and MarketWatch.