Rising prices a factor in 'rare miss' on pending home sale projections

With supply low and demand high, home prices have risen, making it difficult for first-time homebuyers, leading to a 1.0% decrease in pending home sales, the National Association of Realtors

Sales declined a revised 2.0% fall in September, first reported as a 2.2% drop.

Economists polled by IFR Markets anticipated a 1.0% rise.

Year-over-year, sales are up 20.2%.

The index now sits at 128.9. An index of 100 is equal to the level of contract activity in 2001, according to the NAR.

“The housing market is still hot, but we may be starting to see rising home prices hurting affordability,” according to NAR Chief Economist Lawrence Yun.

With mortgage rates at historic lows and the number of homes for sale limited, "very strong demand has pushed home prices to levels that are making it difficult to save for a down payment, particularly among first-time buyers, who don’t have the luxury of using housing equity from a sale to use as a down payment," he said.

Additionally, with people working from home and often children schooling at home, families' needs have changed, generating "demand for both primary and secondary homes.”

It was "a rare miss for the residential housing market, with pending home sales falling 1.1% in October, below the consensus forecast for a 1.0% gain," said Scott Anderson, chief economist at Bank of the West.

Scott Anderson, chief economist at Bank of the West, called it a “rare miss” compared to expectations. “The recent surge in home prices is denting housing affordability and pushing more potential buyers to the sidelines,” he said. “More existing home inventory is needed to temper price gains and improve affordability.”

Focusing more on the annual gain, Joel Kan, mortgage bankers association’s assistant vice president of economic and industry forecasting, said it's “a sign that we continue to see sustained demand for housing late into 2020."

Chicago PMI
The Chicago Business Barometer slid to 58.2 in November, from 61.1 in October.

Economists expected a 59.0 read.

“The index now stands at the lowest level since August but remains in expansion,” the report said.

Of the major five indicators, only new orders and production fell in the month, with supplier deliveries rising the most.

Dallas Fed Texas manufacturing
Manufacturing activity in the Texas region “expanded in November for the sixth consecutive month, though at a markedly slower pace,” according to the Federal Reserve Bank of Dallas’ manufacturing sector survey, released on Monday.

Current conditions for the general business activity slumped to 12.0 in November from 19.8 in October, while the company outlook index decline to 11.0 from 17.8. Production plunged to 7.2 from 25.5 while capacity utilization fell to 6.9 from 23.0 and new orders decreased to 7.2 from 19.9. Shipments fell to 13.7 from 21.9 and wages and benefits declined to 13.6 from 16.5.

The outlook uncertainty index fell to 7.2 from 11.0.

The six-months forward looking general business activity index slipped to 25.8 from 28.4, while the forward looking company outlook index dropped to 22.5 in November from 31.7 in October. Production fell to 40.8 from 47.2, capacity utilization decreased to 36.2 from 43.7 and new orders gained to 43.2 from 38.2.

“While factory production in the Dallas Fed region has expanded for six consecutive months, the pace is slowing with the production index falling to 7.2 from 25.5 in October,” said Anderson. “Moreover, the drop in the new orders index, growth rate of orders index, shipments index and capacity utilization index point to slower Dallas region manufacturing growth in November and in the months ahead. The outlook for general business conditions six months ahead dropped but is still firmly in positive territory.”

Chicago Fed Midwest index
The Federal Reserve Bank of Chicago's October Midwest Economy Index suggested “slower, but still well-above-trend Midwest growth."

The MEI decreased to 3.15 in October from 4.34 in September, while the relative MEI gained to 2.50 from 1.16.

All the states in the region — Michigan, Wisconsin, Indiana, Iowa and Illinois — made positive contributions in the month.

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Economic indicators Federal Reserve Bank of Dallas Housing markets Federal Reserve Bank of Chicago Manufacturing industry
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