Economic Report: Pending home sales surge higher in October — will the new COVID variant trip up the real-estate market?

Compared with last year, pending sales were down 1.4%, reflecting how much home-buying activity has cooled from the breakneck pace of last year.

The pending home sales index measures real-estate transactions where a contract was signed for a previously-owned home, but the sale had yet to close, and it is benchmarked to contract-signing activity in 2001. The index provides insight as to the direction existing-home sales figures will take in the months to come, which is based on closed transactions.

“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,” Lawrence Yun, chief economist for the National Association of Realtors, said in a report. “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.”

Every region saw an increase in sales, led by an 11.8% gain in the Midwest, the report noted. Yun added that the report solidified projections that existing home sales will exceed an annual rate of 6 million for 2021.

The big picture

The decline in pending sales in September has raised questions about the existing-home sales report that was released last week, since that report had shown an uptick in sales. The pending-home sales index is considered to be a leading indicator for existing home sales, but the October report likely settled many of those questions.

While sales are still happening at a fast pace, especially for the fall, most economists expect that momentum will slow next year, particularly if mortgage rates increase as expected.

In the near term, the forward trajectory for the housing market may be dependent on what happens with the Omicron variant of the virus that causes COVID-19. It is still not known how transmissible the new variant is, nor whether it increases the likelihood of more severe cases of COVID-19 that could result in hospitalization or death. If the variant is shown to be a larger threat — and if it evades the protections offered by vaccines — there could be a reintroduction of policies aimed at curbing the rate of infections.

The real-estate industry has adapted in many ways to provide more flexibility, so it is unlikely that there would be a slowdown similar to the start of the pandemic. However, if the new variant weighs on consumer confidence, that could cause some would-be buyers to second guess their decision to purchase a home.

What they’re saying

“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. “Real estate markets have left the overheated spring 2021 behind, as an increase in the number of homeowners ready to move forward with pandemic-delayed plans boosted new listings and tamed skyrocketing price growth.”