Potential home buyers came out of the woodwork in October, signing contracts to buy existing homes at a higher-than expected pace.
Pending home sales jumped 10.4 percent compared to September, according to the National Association of Realtors, with the biggest gains in the Midwest, up 24 percent.
The Northeast also saw sizeable gains, as did the South. Only out West did buyers stay on the sidelines, with pending home sales there basically flat month to month.
“Home sales have been plodding along at a sub-par level while interest rates are hovering at record lows, and there is a pent-up demand from buyers who normally would have entered the market in recent years," said Realtor chief economist Lawrence Yun. "We hope this is indicates more buyers are taking advantage of the excellent affordability conditions.”
But even the Realtors caution that not all contracts turn into actual closed home sales. In fact, 18 percent of Realtors reported at least one cancelled contract in September, which is a huge jump from the normal level of between 4 and 6 percent.
Cancellations are running high for several reasons. First and foremost is credit. Many potential buyers are either not qualifying for a loan or not getting the interest rate they need; another reason is short sales, which are making up a growing percentage of distressed sales. This is when the bank allows the borrower to sell for less than the value of the mortgage. Short sales are a long and difficult process, requiring bank approval, and many potential buyers drop out in frustration.
Consumer confidence is not helping matters either. As the crisis in world financial markets sends the U.S. stock market on a roller coaster ride, many buyers get cold feet.
They also see continued home price declines, as seen in Tuesday's report from S&P/Case Shiller. That, Realtors say, can easily scuttle a deal.