Sales of existing homes in the U.S. declined for the ninth consecutive month in October, marking the longest decline on record. The steepest mortgage rates in two decades and high home prices are keeping many buyers away.
The National Association of Realtors announced Friday that previously owned home sales fell 5.9% in October from the previous month to a seasonally adjusted annual rate of 4.43 million, the lowest rate since May 2020. Compared to a year earlier, October sales were down 28.4% from February 2008.
NAR has tracked home sales since 1999, and this is the longest streak of declining sales since February. Existing-home sales have declined about 32% since January.
Borrowing rates have rapidly increased, causing the slowdown. A 30-year fixed-rate mortgage’s average rate began climbing rapidly in the first quarter and topped 7% earlier this month.
In spite of the recent decline in mortgage rates, they are still more than double where they were a year ago.
A surge in borrowing costs has pushed away potential buyers and kept many would-be sellers from selling, leading to a shortage of available properties. As rents and inflation rise, first-time buyers are finding it harder to save for down payments now that they have stepped back from the market.
Home sales have declined this year as a result of the Federal Reserve’s aggressive interest-rate increases aimed at cooling the economy and reducing inflation. Interest-rate fluctuations drive home sales as well as expenditures on renovations, furniture, and appliances, which fuel related economic activity.
Due to low supply, home prices have continued to rise annually, although their pace has slowed sharply in recent years. The slowdown is expected to persist in 2023 as affordability for home buyers falls to its lowest level in decades.
October’s 6.6% median price increase from a year ago is the lowest since June 2020.
Several economists predict significant decreases in prices next year. “We have a demand side that has evaporated so rapidly,” said Diane Swonk, chief economist at KPMG, who is predicting home prices to decline 20% by 2023 from this year.
Freddie Mac reported that home-buying interest increased this week as buyers rushed to take advantage of a sudden drop in interest rates to 6.61%. On a seasonally adjusted basis, mortgage applications for home purchases rose 4% from the previous week in the week ended Nov. 11.
Inflation remained high in October, the labor market remained tight and consumers kept spending at retailers-all signs that the economy is still running hot. “The rising mortgage rate is consistent with falling home sales,” said Lawrence Yun, NAR’s chief economist. Yun also noted that other than the early months of the Covid-19 pandemic, October’s existing-home sales rate was the lowest since December 2011.
Home buyers have also become more nervous as a result of broader economic uncertainty. The October data reflect primarily purchase decisions made in September and August. Generally, demand slows in the winter compared with spring and summer. According to NAR, there were 1.22 million homes for sale or under contract nationwide at the end of October, down 0.8% from both September 2022 and October 2021.
Home builders have pulled back from new construction and started cutting prices in response to lower demand. Existing-home sales fell the most in the West, down 9.1%, and in the Northeast, down 6.6%. According to the National Association of Home Builders, homebuilder confidence declined for the 11th straight month in November to its lowest level since April 2020.
Jennifer Barnes, a real-estate broker in Chicago noted “The people that are selling right now are people that, for whatever reason, have to sell.”
Residential permits, which can serve as a bellwether for future home construction, fell 2.4% in October compared to September, the Commerce Department reported. Eric Lipar, chief executive of builder LGI Homes Inc., noted in an earnings call this month. “Finding buyers who are both motivated and qualified is the new game in town.”
In the West, existing-home sales fell 9.1% month-over-month, and in the Northeast, they fell 6.6%. The lower demand has led builders to cut prices and pull back from new construction. As reported by the National Association of Home Builders this week, U.S. homebuilder confidence fell for the 11th consecutive month in November to its lowest level since April 2020.
In October, the Commerce Department reported a 4.2% decline in housing starts from September. There was a 2.4% drop in residential permits, which can be a sign of future home construction.