Sales of existing homes in October soared well past expectations, rising 4.3% compared with September and 26.6% annually to a seasonally adjusted annualized rate of 6.85 million units, according to the National Association of Realtors.
The NAR’s chief economist, Lawrence Yun, called the annual increase “a spectacular gain.”
The annualized sales rate is the highest since February 2006. The highest pace ever was in 2005 at 7.1 million units.
The data reflect closed sales representing contracts signed in August and September .
“It’s quite amazing. Even if the home sales were to go down to 6 million, I would be happy,” said Yun. “The surge in sales in recent months has now offset the spring market losses. With news that a COVID-19 vaccine will soon be available, and with mortgage rates projected to hover around 3% in 2021, I expect the market’s growth to continue into 2021.”
Yun forecasts existing home sales to rise by 10% to 6 million in 2021.
Sales could likely have been stronger if there was simply more available for sale. There were 1.42 million existing homes on the market at the end of October, a 19.8% drop compared with October 2019. At the current sales pace, that represents a 2.5-month supply, the lowest on record. The last time the sales pace was at the current rate, the supply of homes for sale was twice what it is now.
The extreme shortage of homes for sale is adding more fuel to the fire under home prices. The median price of an existing home sold in October was $313,000, up 15.5% annually. That is the highest median price on record and reflects the far stronger sales on the higher end of the market. Sales of homes priced above $1 million nearly doubled while sales fell in the lowest price range.
Historically low mortgage rates have been helping buyers, but prices have been so strong lately that they no longer have the power they once did to really increase affordability. And low rates may not last much longer.
“Mortgage rates could tick up in the months ahead and test the strength of this seemingly unstoppable housing market,” said Danielle Hale, chief economist at realtor.com. “Additionally, rising coronavirus cases could also dampen sales. This spring we saw both buyers and sellers hit ‘pause’ on their plans in areas where coronavirus spread was prevalent. While buyers were relatively quick to resume, sellers have come back more slowly.”
Regionally, month to month, sales in the Northeast rose 4.7%. In the Midwest they increased 8.6%, and in the South they were up 3.2%. In the West, they rose 1.4%.
Investors continue to be strong in the market, representing a 14% share of sales, compared with 12% in September.
The severe shortage of existing homes for sale has been incredibly beneficial for the nation’s homebuilders, who have seen very strong demand. Mortgage applications to purchase a newly built homes were up nearly 33% annually in October, according to the Mortgage Bankers Association.
Unfortunately, single-family housing starts aren’t rising enough, particularly not in the lower price categories. In addition, single-family building permits were flat for the month in October, according to the U.S. Census. Permits are an indication of future construction.
“Volatile materials costs and a shortage of available land continue to hold builders back from truly hitting their stride,” said Matthew Speakman, an economist at Zillow. “And flat permitting activity shows that the future project pipeline isn’t exactly overflowing.”