Will the omicron variable hit the property market?

 

Pending home sales soar in October - will the omicron variable hit the property market?

Every region in the US has seen an increase in buyers signing contracts to buy homes. Still, the trajectory of the housing market may depend on the omicron variant of the virus that causes COVID-19.

Homebuyers, especially those with a solid financial footing, rushed to secure contracts to purchase real estate in anticipation of higher interest rates. The omicron variant could affect the future course of the housing market.

Numbers: jump signing contracts

In October, the number of homebuyers who signed a home purchase contract increased significantly, exceeding economists' expectations.

The home sales rose 7.5% in October compared to September. Economists polled by MarketWatch expected a 0.7% increase in pending home sales in October.

Compared to last year, pending sales are down 1.4%, reflecting how much home buying activity has slowed from the fast pace of 2020.

The pending home sales index measures real estate transactions where a contract for a previously owned home has been signed, but the sale has not yet finished and is measured for contract-signing activity in 2001. The index provides insight into the trend that existing home sales numbers will take in the coming months, based on closed transactions.

The report noted that each region saw an increase in sales, led by an 11.8% rise in the Midwest. Yoon added that the report reinforced expectations that existing home sales will exceed the annual rate of 6 million in 2021.

The October pending home sales report probably helps explain some of the existing home sales reports released last week. There was a decline in pending home sales in September, but sales of existing homes rose in October. Many economists were surprised by the increase in existing home sales in October. The pending home sales report is generally an indicator of current deals, recording when contracts are signed while existing home sales reflect closed transactions.

While sales are still happening at a brisk pace, especially in the fall, most economists expect momentum to slow next year, significantly if mortgage rates rise as expected.

In the near term, the housing market's forward trajectory may depend on what happens with the omicron variant. It is still unknown how transmissible the new variant is, nor whether it increases the likelihood of more severe cases of COVID-19 that can lead to hospitalization or death. If the variant proves to be a more significant threat—and if it evades the protection offered by vaccines—there may be a re-introduction of policies to reduce the infection rate.

The real estate industry has adapted in many ways to provide more flexibility. Hence, it is unlikely to be a slowdown similar to what occurred at the beginning of the pandemic. However, if the new variable weighs on consumer confidence, it may cause some potential buyers to guess their decision to buy a home.

What are they saying?

"As we move into the fall, housing has remained competitive, with limited inventory and a fast turnover, even with mortgage rates rising 15 basis points during the month," said George Ratio, director of economic research at Realtor.com. "Real estate markets have left the frenetic spring of 2021 behind, as the surge in homeowners willing to press ahead with pandemic delay plans has boosted new listings and tamed high price growth."