The latest figures on home sales have signaled a worrisome trend for the housing market. Existing home sales have plummeted to levels not seen since the Great Recession, while prices persistently remain high amidst soaring mortgage rates. The National Association of Realtors reported that existing-home sales in October fell below economists’ projections at 3.79 million. Although the median price last month saw a 3.4% increase compared to 2022, it still marked a significant 6.3% decline from September.
The decline in home sales is concerning, considering that annualized home sales figures have averaged around 5.3 million per month since 2000. Only three other months, all following the 2007-08 financial crisis, have witnessed lower sales than October. This includes July 2010, which recorded a low watermark of 3.45 million sales.
Across all regions, existing-home sales have declined from both October 2022 and last month, except for the Midwest, which saw sales remain unchanged from September but drop by 13.9% compared to the previous year. The housing market contraction has not affected all regions and price points equally, but all areas have experienced declines since 2022.
Numerous factors have contributed to the continued fall in home sales. One prominent issue is the persistently elevated prices. October’s median sales price of $391,800 is among the highest recorded in the past 22 years. Typically, prices tend to decrease during the fall months, but this year has defied the norm.
Another factor is the tight inventories in the housing market. Currently, there is only a 3.5-month supply of houses based on the current sales pace. A balanced market between buyers and sellers would require a 4- to 5-month supply. A slight sign of softening is observed in the increase in average days on the market, rising a couple of days from October 2022 to 23.
The high mortgage rates are also deterring potential buyers from entering the market. Homeowners who took advantage of historically low mortgage rates in recent years are hesitant to take on new mortgages with rates that could be more than double their current ones. According to Freddie Mac, the average 30-year mortgage rates have reached 7.44%, further discouraging buyers in October. Consequently, all-cash sales have risen from 26% last year to 29% in October, while the percentage of first-time buyers has remained unchanged.
Although Federal Reserve Chairman Jerome Powell and other officials have indicated that interest rates are unlikely to decrease in the near future, many investors are predicting that the Fed will maintain steady rates in their upcoming meetings in December and January.
In conclusion, the weakening home sales indicate the challenges faced by the housing market due to high prices and mortgage rates. It remains to be seen how the market will adapt and if any measures will be taken to alleviate these pressures.
Frequently Asked Questions
1. Why are home sales continuing to fall?
Home sales are declining due to several reasons, including elevated prices, tight inventories, and high mortgage rates. These factors have deterred potential buyers from entering the market.
2. How are existing-home sales performing across different regions?
Existing-home sales have declined in all regions except for the Midwest. The Midwest saw sales remain unchanged from September but drop by 13.9% compared to the previous year.
3. What impact do high mortgage rates have on home sales?
High mortgage rates have discouraged homeowners from taking on new mortgages. Homebuyers who enjoyed historically low rates in recent years are reluctant to commit to higher rates, impacting the demand for homes.
4. Will interest rates continue to rise?
While Federal Reserve officials have expressed no plans to decrease interest rates, investors predict that the Fed will maintain steady rates in their upcoming meetings in December and January.