The U.S. housing market is showing no signs of recovery as pending home sales crashed to 20-year lows in October.

According to the National Association of Realtors (NAR), pending home sales fell 1.5% during the month and were down 8.5% year-over-year.

The pending home sales index is a leading indicator of the U.S. housing market because it tracks contract activity for single-family homes. When contract activity declines, fewer purchases are expected to come through in the coming months.

NAR said contract activity was down in the West, Midwest, and South, while the Northeast posted gains. But all four regions saw a decline in activity compared to last year.

“During October, mortgage rates were at their highest, and contract signings for existing homes were at their lowest in more than 20 years,” said NAR chief economist Lawrence Yun.

While Yun acknowledged that the recent drop in mortgage rates should help more buyers qualify for loans, these buyers are entering a market with very limited supply.

That largely explains why sales on properties valued above $750,000 increased compared to last year.

Low inventory threatens housing recovery

Although rising mortgage rates have stunted demand for real estate, the market’s deep freeze can also be attributed to a severe housing shortage.

With fewer houses on the market, buyers are competing for limited inventories and driving up prices.

According to, housing inventories declined for four consecutive months through October before posting a modest rebound last month. Inventories were still down 38% compared to pre-pandemic levels.

While inventories increased in November, the total number of homes for sale—which includes properties under contract but not yet sold—fell 0.7% in the same month. That was the seventh consecutive year-over-year decline.

“While record-high mortgage rates are putting off many would-be buyers, decreases in both inventory and time homes spend on the market shows that some buyers are moving quickly to lock in rates before they can go any higher,” said chief economist Danielle Hale.

Is mortgage relief coming?

Since peaking at 7.79% in late October, mortgage rates have fallen for five consecutive weeks, according to Freddie Mac. The average 30-year rate was 7.22% in the week of Nov. 30.

That’s still more than double the “effective” mortgage rate, or the prevailing interest rate on existing loans. The large gap between the two rates means homeowners will likely hold off on putting their properties up for sale.

After all, why would they trade a mortgage rate of 3.6% for one above 7%?

The good news is all the major industry players expect mortgage rates to decline next year. Fannie Mae, Mortgage Bankers Association, and NAR expect rates to average between 6.1-6.7% by the end of 2024.

The bad news is those levels remain well above the rates that most homeowners locked in before the pandemic.