Contract signings for existing homes logged their slowest pace in more than two decades in October.
Home sales under contract dropped 1.5% from the month before, according to the National Association of Realtors on Thursday. The 71.4 index reading is the lowest since the index's founding in 2001. An index level of 100 is equal to the pace of contract activity in 2001.
Still, the results were better than the 2.0% decline that Bloomberg economists had estimated and come after a bigger slide in new home sales that same month.
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The drop in the index, a leading gauge used to assess the housing market’s health, still reflects how rising rates in October again unnerved budget-sensitive buyers and pushed pending sales in the resale market down by 8.5% annually.
“Rates were hovering around 8% in October. They were the highest in 23 years, which pushed affordability to a record low,” RSM US real estate senior analyst Crystal Sunbury told Yahoo Finance ahead of the release. “We'll see pending home sales falling accordingly in October.”
The average rate on the 30-year fixed mortgage surged a half-point during the month, jumping from 7.49% in the first week to 7.79% in the last one, according to Freddie Mac. (Since then, rates have fallen back.)
The yield on the 10-year Treasury — which fixed mortgage rates tend to follow — momentarily eclipsed 5% at the end of October for the first time in 16 years as concerns piled on over the Fed’s stance that interest rates will remain "higher for longer."
That meant only 37% of homes sold during the third quarter were affordable to families earning a typical income, down from 40.5% in the second quarter, per the latest National Association of Home Builders/Wells Fargo Housing Opportunity Index.
Many buyers, as a result, scurried away.
Contract signings in the West fell 6.0%, while pending sales dropped 0.4% in the Midwest. The South also recorded a monthly dip of 1.9% in pending sales in October. Only the Northeast saw a 2.7% gain in activity with sales under contract, but that was still down 6.5% from a year ago. The other three regions also registered year-over-year declines in activity.
Another major headwind remains the limited inventory on the market. In fact, higher rates are to blame because they are dissuading many homeowners from listing their properties for sale, exacerbating long-term inventory issues.
“Limited housing inventory is significantly preventing housing demand from fully being satisfied," Lawrence Yun, NAR's chief economist, wrote in the release. "Multiple offers, of course, yield only one winner, with the rest left to continue their search."
Multiple offers are also helping to push up home prices despite higher mortgage rates. The S&P Corelogic Case-Shiller National Home Price Index rose 0.7% in September from August on a seasonally adjusted basis, hitting another record high for the index and clocking eight consecutive monthly gains.
"Home prices are at an all-time high based on this index, suggesting the lack of existing inventory is more than offsetting the negative pressure of higher mortgage rates on home prices as buyers compete for a limited number of homes for sale," Jay Hawkins, senior economist at BMO Capital Markets, wrote following the release of Case-Shiller.
That’s why for much of the year many buyers have turned to new construction.
Typically, new homes represent 6% to 20% of existing home sales and tend to be more expensive than older homes. But as the resale market remains starved for inventory, new homes have become the next best option for prospective buyers.
“What’s more, existing home prices are the highest they’ve been relative to new homes since the peak of the subprime mortgage bubble back in the mid-2000s,” George Pearkes, macro strategist at Bespoke Investment Group, wrote in a note to clients this week. “That’s another reason that new home sales are so strong relative to existing home sales … there’s a huge price incentive to buy new!”
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Dani Romero is a reporter for Yahoo Finance. Follow her on Twitter @daniromerotv.