Contracts to purchase previously owned homes unexpectedly decreased in November on a sudden pickup in mortgage rates and limited inventory, according to figures released Wednesday by the National Association of Realtors.
The seasonally adjusted pending-sales gauge fell in November to 107.3, the lowest since January. It declined by 2.5% compared with October. The index increased 1.4% from November 2015 on an unadjusted basis.
Pending sales decreased in three of four U.S. regions on a month-to-month basis.
The drop in contract signings was the first in three months and shows the impact of a surge in borrowing costs that began after the U.S. presidential election. While home-buying activity has been spurred by further labor-market improvement and promising gains in wages, the industry also has been challenged by limited inventory, particularly for lower-priced homes that could attract entry-level buyers. A further increase in mortgage costs risks reducing affordability as gains in property values have been outpacing income growth.
“The budget of many prospective buyers last month was dealt an abrupt hit by the quick ascension of rates immediately after the election,” Lawrence Yun, NAR’s chief economist, said in a statement. “Already faced with climbing home prices and minimal listings in the affordable price range, fewer home shoppers in most of the country were successfully able to sign a contract.”
By region, pending sales decreased 6.7% in the West compared with October, the biggest decline since July 2013. They fell 2.5% in the Midwest to the lowest level since January. Contract signings in the South, the nation’s largest region, declined 1.2% to the weakest level since September 2014.
There will be 5.42 million home sales this year, up from 5.25 million in 2015 and the strongest since 2006, Yun projected.