Year-over-year, home sales were down 5.8% from October 2020, which marked the cyclical peak in the pandemic surge in home buying.
NAR’s chief economist Lawrence Yun said this year’s sales are on track to surpass 6 million homes, which would be the strongest performance since 2006.
“Home sales remain resilient, despite low inventory and increasing affordability challenges,” said Yun. “Inflationary pressures, such as fast-rising rents and increasing consumer prices, may have some prospective buyers seeking the protection of a fixed, consistent mortgage payment.”
Still, the short supply of homes available for sale continues to drive home prices even higher, making the purchase of a home even less affordable for first-time and lower income buyers.
The median existing-home price for all housing types in October was $353,900, up 13% from a year ago. This marks 116 straight months — or more than nine and a half years — of year-over-year increases, the longest-running streak on record.
Inventory remains tight
The short supply of inventory continues to weigh heavily on the housing market and it doesn’t appear to be letting up anytime soon.
There were 1.25 million homes available for sale at the end of October, down 12% from a year ago and slightly lower than September, NAR reported.
At the current sales pace, the market has a 2.4-month supply of homes. Typically, a balanced market has roughly a 6-month supply of homes.
“While competition for homes has eased somewhat since the mania months earlier this year, competition is still fierce and prices are still rising at double-digit rates,” said Robert Frick, corporate economist at Navy Federal Credit Union.
Rising home prices have made things especially difficult for lower-income buyers since there is more inventory available at the higher end of the market, said Frick.
In October, sales of homes priced between $250,000 and $500,000 were down by 2% from a year ago because there just weren’t enough homes to meet demand. Meanwhile, sales of homes priced from $500,000 to $750,000 were up 18% from a year ago and those costing more than $1 million were up 31%.
This highlights the need for more homes — both from existing homeowners and from new construction — to be put on the market to supplement and replenish the country’s aging housing stock, said Joel Kan, associate vice president of economic and industry forecasting for the Mortgage Bankers Association.
More investors and cash in the market
Another factor contributing to rising prices: More people are buying homes with cash, a move commonly used by buyers looking for investment properties to rent or for a getaway home.
Nearly a quarter of homes purchased in October were all-cash deals, according to the NAR report. That’s up from 19% a year ago. And homes bought as vacation homes or for investment properties made up 17% of homes bought in October, rising from 14% a year ago.
“Among some of the workforce, there is an ongoing trend of flexibility to work anywhere, and this has contributed to an increase in sales in some parts of the country,” said Yun. “Record-high stock markets and all-time high home prices have worked to significantly raise total consumer wealth and, when coupled with extended remote work flexibility, elevated housing demand in vacation regions.”
As a result of this increased financial muscle, home buyers who are financing home purchases with a mortgage and first-time home buyers continue to struggle to compete in the market. First-time buyers made up just 29% of sales in October, down from 32% a year ago.
“Any buyers who are competing to buy with mortgages, especially if they have FHA, VA mortgages which have more involved appraisal processes, may find it very difficult to compete against all cash,” said Yun.