Why Did Home Sales Surge in October Despite Rising Mortgage Rates?

The real estate market has been seeing some unexpected activity recently, as home sales surge to new heights despite economic challenges. October saw a noticeable uptick in the number of existing homes being sold, marking a significant rebound from the slow summer months.

This surge, driven by falling mortgage rates and increasing inventory, signals a potential shift in the housing market, creating new opportunities for buyers and sellers alike.

Factors Driving the Surge in Home Sales

Several factors have contributed to this unexpected  home sales surge, particularly in the month of October. The housing market, which had been relatively sluggish due to high mortgage rates and a limited supply of homes, experienced a refreshing boost as mortgage rates began to decline.

Mortgage Rates Drop

redfin.com | Mortgage rates fell from 6.6% to 6.1% in August-September, reviving buyer interest.

In August, the 30-year fixed mortgage rate started at about 6.6%, but by mid-September, it had dropped to around 6.1%. This dip sparked renewed interest from potential buyers, who had previously held off due to the high borrowing costs. The lower rates were enough to encourage hesitant buyers to make their move before rates had the chance to climb back up.

Increasing Inventory

As more homes became available for sale, the pressure on the market began to ease. By the end of October, there were 1.37 million units listed, representing a 19.1% increase compared to the same period in 2023. However, inventory levels are still relatively tight, with the supply sitting at just 4.2 months—far from the balanced 6-month supply considered ideal for a healthy market.

This rise in available homes for sale gave buyers more options, but it also created a competitive environment. Despite this, the increase in inventory has helped ease some of the upward pressure on home prices.

Prices on the Rise Amid Tight Supply

As demand continues to outpace supply, home prices are still seeing an upward trend. The median price for an existing home in October stood at $407,200, which is a 4% increase compared to the same time last year. While this price increase might be frustrating for some buyers, it’s a sign of a recovering market, especially as more inventory becomes available.

Price Trends

Higher-priced homes have been selling at a faster pace than lower-priced ones, as wealthier buyers are more likely to absorb the current interest rates without significantly altering their purchasing power. This has led to a more active high-end market, while the lower end continues to see less activity.

Impact on First-Time Buyers

First-time homebuyers, who usually represent around 40% of the market, have made up only 27% of sales in recent months. The rise in mortgage rates and higher home prices have made it harder for many first-time buyers to enter the market, further reinforcing the importance of affordability in today’s real estate landscape.

What Experts Are Saying About the Market Surge

According to Lawrence Yun, the chief economist at the National Association of Realtors, the surge in home sales could signal that the worst of the downturn is behind us. He notes that while the housing market has been grappling with high mortgage rates and a tight inventory, economic factors such as job growth and rising demand are likely to continue pushing the market forward.

Instagram | redfinrealestate | According to NAR’s chief economist, Lawrence Yun, recent home sales surge suggests a potential end to the housing downturn.

“The recent uptick in home sales suggests a shift in the market,” says Yun. “As more homes become available and interest rates stabilize, demand will likely remain strong, particularly in areas with increasing economic growth and job opportunities.”

Challenges and Opportunities for Buyers and Sellers

Despite the recent home sales surge, the market is far from returning to pre-pandemic conditions. According to experts, there’s still a need for at least 30% more inventory to meet demand and return to a balanced market. This ongoing shortage of homes for sale continues to place upward pressure on prices, making it challenging for buyers looking for affordable options.

However, with mortgage rates currently at around 7.05%, buyers are now facing a more difficult financial situation than in previous years. Still, some potential buyers are continuing to test the waters, especially with an increased level of interest seen after the election.

Will the Surge Continue?

While the recent surge in home sales has been encouraging, it remains to be seen whether the momentum will continue. A recent report from Redfin showed a noticeable increase in buyer activity following the election, with a 17% rise in inquiries from potential buyers. This could be an indication that some of the pent-up demand from earlier in the year is now spilling over into the market.

As mortgage rates continue to fluctuate, the real estate market is likely to experience further shifts in the coming months. Buyers and sellers alike will need to stay flexible and monitor interest rate changes and local market conditions to make informed decisions.