In October, the United States witnessed a substantial decline in the sale of existing homes, reaching the lowest level in 16 years due to rising mortgage rates and persistently high home prices. Potential buyers are increasingly hesitant to make purchases, contributing to this significant downturn in the housing market.
The National Association of Realtors (NAR) reported that home sales dropped by 5.5% last month, with the seasonally adjusted annual sales rate standing at 3.75 million units. This figure marks the lowest level since August 2010 when sales began to decline after the expiration of the homebuyer tax credit.
Economists surveyed by Reuters had predicted that sales of existing homes would fall to approximately 3.85 million units in October. However, the actual sales were even lower than this forecast. Comparatively, sales in October plummeted by 8.8% compared to the same month last year.
It’s important to note that the reported sales numbers reflect contracts that were signed in August and September, as sales are counted based on the contract completion date.
Data from Freddie Mac, a key mortgage finance institution, indicated that the average rate for a 30-year fixed mortgage surged above 7% in late August and hit 7.40% by mid-September, marking an increase of 142 basis points since February. Last week, the average mortgage rate was reported at 7.18%, a slight decrease from the previous week’s rate of 7.24%.
Lawrence Yun, NAR’s chief economist, commented, “Mortgage rates have climbed to their highest levels since 2000, except for one month in 2023, making home buying extremely challenging.”
Sales declined across various regions in the southern, midwestern, and western United States, while sales in the Northeast remained stable during this period.
Inventory of existing homes rose by 1.3%, reaching 1.59 million units, which represents a year-on-year increase of 4.6%. Based on the current sales pace, the existing home inventory would take 5.1 months to sell out, the highest level since November 2015, reflecting an increase from 4.7 months in September and 4.4 months a year ago.
The median price of existing homes rose by 0.4% from the previous year, reaching $421,900, marking a record high for the month of October in historical terms.
First-time homebuyers accounted for 29% of the sales, a decrease from 31% in September and 32% from the previous year. Experts indicate that this demographic needs to represent around 40% of home sales to ensure a robust real estate market.
The average number of days properties were listed prior to sale increased from 33 days in September and 34 days a year ago to 35 days. The proportion of distressed properties, including foreclosures, remained stable at 2%, while cash transactions rose to 29% of total sales.
This analysis reflects the current challenges faced by the housing market and indicates a shift in buyer behavior amidst elevated mortgage rates and home prices. The ongoing economic conditions are likely to put further pressure on the housing sector, influencing future sales and market dynamics.