Demand for housing is high, but there aren't enough homes for sale to meet it.
Pending home sales, which measure signed contracts, fell 1.7% in October month-to-month, according to the National Association of Realtors. Sales were 4.4% higher annually, likely because mortgage rates are much lower this fall.
The average rate on the 30-year fixed mortgage was about a full percentage point lower this October than it was a year ago. Rates did move slightly higher in October, which could account for some of the monthly drop, but a shortage of homes for sale is more of the culprit. Lower rates overall this year have juiced demand significantly, causing for-sale inventory to fall. Inventory had been rising at the start of this year, due to last year's rate spike.
"We still need to address and, more importantly, correct inadequate levels of inventory across the country," said Lawrence Yun, chief economist at the NAR. "There is no shortage of buyers seeking homes, but a lack of available units continues to drag down the nation's housing market and overall economy."
Sales of newly built homes, which are also measured by signed contracts, were significantly higher in October compared with a year October 2018. Builders are seeing strong demand and are trying to shift production to more affordable homes. Housing starts are still not where they need to be, however, to meet demand.
"We risk a lingering shortage of sufficient inventory if homebuilding only continues at its current pace over the next 20 years, when the U.S. population is projected to increase by more than 40 million over this period. Clearly, home builders must step in and construct more housing," added Yun.
Regionally, pending home sales in the Northeast rose 1.9% for the month and were 3% higher annually. In the Midwest sales fell 2.7% monthly but were 1.8% higher annually. Sales in the South decreased 1.7% monthly but were up 5.1% from a year ago. In the West, pending home sales fell 3.4% for the month but were 7.5% higher than October 2018.