By Anna Louie Sussman
WASHINGTON -- The number of homes that went under contract inched higher in October, a sign the housing market could be plateauing in the final months of the year.
The National Association of Realtors said Wednesday that its pending home sales index, which tracks contract signings for previously owned homes, edged up 0.1% from a downwardly revised September reading to a seasonally adjusted 110.0. Sales typically close within a month or two of signing.
"Home sales likely have peaked," said Ian Shepherdson, chief economist at Pantheon Macroeconomics. He said buyers have been trying to lock in low mortgage rates in recent weeks before they head higher, but that pattern won't hold for long.
"We expect home sales clearly to fall in the first quarter," Mr. Shepherdson said.
October's reading was 1.8% above where the index stood in October a year ago, and the highest since July.
But the housing market is facing a number of headwinds, including rising mortgage rates, home price appreciation that has outpaced most workers' wage gains, and limited inventory. In September, U.S. home prices climbed back above the record reached more than a decade ago, according to the S&P CoreLogic Case-Shiller U.S. National Home Price index released Tuesday.
Borrowing costs were still low in October. The average interest rate on a 30-year fixed-rate mortgage in October was 3.47%, below the October 2015 average of 3.80%, according to Freddie Mac. But the average rate on a 30-year fixed conforming mortgage has risen to 4.16%, according to the Mortgage Bankers Association, up from post-Brexitlows around 3.6%.
Daniel Silver, an economist at J.P. Morgan Chase & Co., said the key question "is what will happen to the housing market following the increase in rates that occurred since early in November."
News Corp, owner of The Wall Street Journal, also operates Realtor.com under license from the National Association of Realtors.
The pending-home sales report showed the index rose in all four regions of the country since October 2015, with the strongest annual growth in the Northeast. Lawrence Yun, the trade group's chief economist, said 40% of October's sales were at or above their listed price, a rise from 33% last October.
Other indicators of the housing market's health have been fairly positive in recent months, and the labor market continues to expand, underpinning demand.
Purchases of existing homes, which account for roughly 90% of U.S. homebuying activity, rose in October for a second straight monthto hit an annual rate of 5.60 million, the strongest monthly reading since February 2007, the National Association of Realtors said last week. But the median price of an existing home sold in October was $232,200, up 6.0% on the year, a steep rise that for many workers outpaces annual wage gains.
Purchases of newly built single-family homes were well up through October, compared with the first 10 months of 2015, the Commerce Department said in a separate report released last week. But supplies of those properties remain limited, one factor putting upward pressure on existing-home prices.
Mortgage rates could continue to rise if, as many economists surveyed by The Wall Street Journal predict, Federal Reserve officials raise interest rates at their December policy meeting. That could curb enthusiasm for home buying.
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(END) Dow Jones Newswires
November 30, 2016 12:16 ET (17:16 GMT)
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