The housing market flashed some more good news this week as we learned existing home sales were up from the previous year’s levels for the fourth straight month in October. As we dig into the details here, I want to look at what it means and how it may impact buyers and sellers.
The latest report from the National Association of REALTORS® shows existing home sales up 13.5% to a seasonally adjusted annual rate of 4.97 million homes in October. Although national sales numbers are harder to get excited about (because real estate is local and our local markets can be vastly different from the national trend), this is generally good news because it shows a positive upward trend compared to the same fourth-month period a year ago.
In simpler terms: we’re looking at a pretty strong case here that the bottom of the market has been reached, and we’re well on our way to recovering. That doesn’t mean we’re on our way to the next boom, of course, but it’s good nonetheless.
Perhaps more interesting than the sales numbers, though, is the data about who’s buying:
- 29% of sales in October were from all-cash buyers
- 18% of sales were from investors
- 34% were from first-time buyers
- 28% were distressed sales
The data about who’s not buying is also interesting. The NAR says that the number of sales contracts that fell through in October jumped to 33% from 18% in September, and 8% a year ago. The group says contract failures are cancellations caused by declined mortgage applications, failures in loan underwriting from appraised values coming in below the negotiated price, or other problems like home inspections and job loss.
What does this mean for buyers and sellers? The fact that contract failures almost doubled in a month’s time is a huge red flag that buyers need to have their finances and paperwork buttoned up tightly in order to get a mortgage. Buyers and sellers also need a good understanding of current appraised values before pricing homes and making offers.
I think patience is also in order when attempting a transaction in today’s market. Even though we’re seeing positive signs, there are still a lot of potential problems that can come up in the loan process. Expect that things will take longer than you think. Buyers may need to go to several lenders before you find the right loan. Sellers may end up going through several purchase contracts before the cards align and the buyer gets the loan, the appraisal comes in at the right value, and all is clear to move through escrow.
Is the worst over? No one really knows. One report out this week was commenting on the fact that the birth rate is the lowest in the country since 1999, saying that this lower rate of population growth is a bad sign for housing. However, the life expectancy in 1925 when my dad was born was 54 years old and today it is 79 years old, which means people are living in their homes longer.
We still have a lot of unsold inventory on the market, but it was down 2.2% in October – another good sign. We may not be walking on air, but the latest numbers show we do have something to be thankful for.