US pending home sales decline sharply in October
Pending sales of previously-owned US homes fell for the fifth consecutive month in October, according to the National Association of Realtors. The monthly report showed rising mortgage rates and economic uncertainties continue to slow momentum in the housing market.
The Pending Home Sales Index, which tracks contract signings for single-family homes, fell 0.6 percent in October and at an annualized rate of 1.6 percent. A median estimate of economists surveyed by Bloomberg called for a 1 percent gain in the monthly index. The October reading of 102.1 was the lowest since December 2012.
In addition to rising borrowing costs, the 16-day government shutdown likely put a dent to housing activity. Almost one-fifth of Realtors reported delays in mortgage approvals, as they awaited income verification from the IRS. The decline in contract activity in the Southern and Western United States offset the modest gains enjoyed in the Northeast and Midwest, the NAR concluded.
According to NAR chief economist Lawrence Yun, the housing market will continue to “face headwinds of limited inventory and falling affordability conditions,” which could offset a potential rebound in the coming months.
While home sales are expected to flatten going into 2014, limited inventory is expected to continue driving prices higher. This is especially the case in the Western United States, where limited inventory is already restraining contract offers. New rules could also put a dent in the mortgage approval process, which could further slow momentum in the residential housing market.
The aim of the Qualified Mortgage Rule, as it is now called, is to reduce the likelihood of another housing crisis. The new rules promise to tighten lending requirements for mortgage-seekers. The Qualified Mortgage Rule reduces the debt-to-income ratio of borrowers from 45 percent to 43 percent and requires lenders to take into account taxes and insurance when setting up a payment schedule. The new rules take effect in January 2014.
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