Mortgage rates jumped in October, coinciding with a surge in home sales.

• The National Association of Realtors reported that sales of previously owned homes last month increased by 3.4% from September, reaching a seasonally adjusted, annualized rate of 3.96 million units.
• Last year's sales were 2.9% lower than October's sales, ending a three-year streak of declines.
• At the end of October, there were 1.37 million units available for purchase, representing a 19.1% increase from the same month in 2023.

In October, a significant decrease in mortgage rates encouraged hesitant homebuyers to make a purchase, following a sluggish summer market.

The National Association of Realtors reported that sales of previously owned homes last month increased by 3.4% from September to a seasonally adjusted, annualized rate of 3.96 million units. This was a 2.9% increase from October of the previous year, marking the first annual increase in more than three years.

The average rate on the popular 30-year fixed mortgage was falling during August and September, as indicated by signed contracts. It began at 6.6% in August and reached a low of 6.11% by mid-September, according to Mortgage News Daily.

"Lawrence Yun, NAR's chief economist, stated in a release that the worst of the downturn in home sales could be over as increasing inventory leads to more transactions. Additional job gains and continued economic growth are expected to result in growing housing demand. However, for most first-time homebuyers, mortgage financing is critical. While mortgage rates remain elevated, they are expected to stabilize."

At the end of October, there were 1.37 million units available for sale, which represented a 19.1% increase from the previous year. This left inventory at a 4.2-month supply based on current sales rates. Although this is still a leaner supply, a six-month inventory is considered balanced between buyers and sellers.

The limited availability of homes is driving up prices. In October, the median price of an existing home sold was $407,200, a 4% increase from the previous year. The higher-priced homes are experiencing more activity than the lower-priced homes.

Yun stated that we require an additional 30% in inventory to return to the pre-Covid conditions.

In October 2023, the percentage of all-cash buyers decreased from 29% to 27%. Although this is still a high percentage historically, it is likely that the drop was caused by lower mortgage rates.

Historically, first-time buyers account for 40% of sales, but this year they made up only 27%, a decrease from 28% the previous year.

Despite the increase in mortgage rates to 7.05% on the 30-year fixed, a recent report from Redfin revealed a surge in the number of potential buyers contacting its agents, particularly after the election. Redfin's demand index rose 17% year over year during a one-week period in mid-November to the highest level since August 2023.

"According to Chen Zhao, Redfin's economic research lead, the surge of buyers and sellers entering the market is due to the release of pent-up demand from individuals who were waiting for the election to end and for the Fed to cut interest rates again. Now, we are closely monitoring whether this is a short-lived post-election surge or if it leads to a sustained improvement in pending sales."