After reaching a record high in August, pending home sales slid for a second month, as rising home prices and low inventory started to impede the housing market.
The Pending Home Sales Index (PHSI), reported by the National Association of Realtors (NAR), is a forward-looking indicator based on signed contracts. The PHSI fell 1.1% from 130.3 in September to 128.9 in October, the second consecutive month of decline. However, on a year-over-year basis, sales were still 20.2% higher than a year ago.
The October PHSI were mixed regionally. The PHSI in the Northeast and Midwest declined 5.9% and 0.7% in October, while sales in the South grew 0.1%. The PHSI in the West remained unchanged in October. On a year-over-year basis, all four regions saw double-digit year-over-year growths, ranging from 18.5% in the Northeast to 21.0% in the South.
Despite the declines in these two months, pending home sales still outperformed this year and housing demand remained strong due to low mortgage rates. However, rising home prices driven by low inventory may hurt affordability, especially first-time buyers. More listings and home construction are needed to meet this rising demand.