Drop in sales of existing homes in the United States; tight inventories keep prices up

  • Existing home sales fall 5.9% in October
  • Median home price up 6.6% to $379,100 from a year ago
  • Supply drops 0.8% to 1.22 million units

WASHINGTON, Nov 18 (Reuters) – U.S. existing home sales fell for a ninth straight record month in October as the 30-year fixed mortgage rate hit a 20-year high and prices remained high, putting homeownership out of reach for many Americans.

Despite the sharp drop in sales reported by the National Association of Realtors on Friday, housing supply remained tight, with far fewer homes coming on the market than a year earlier. The housing market has been the sector hardest hit by the Federal Reserve’s aggressive interest rate hikes that aim to stifle high inflation by dampening demand in the economy.

“The combination of rising house prices and mortgage rates has sent housing affordability plummeting,” said Daniel Vielhaber, an economist at Nationwide in Columbus, Ohio. “The decline in affordability is to some extent intentional. The Fed’s goal of slowing economic demand by raising interest rates starts with home sales.”

Sales of existing homes fell 5.9% to a seasonally adjusted annual rate of 4.43 million units last month. Apart from the plunge of the initial phase of the COVID-19 pandemic in the spring of 2020, this was the lowest level since December 2011.

Economists polled by Reuters had forecast home sales would fall at a rate of 4.38 million units.

Home resales, which account for a large portion of U.S. home sales, fell 28.4% year-on-year in October. This is the biggest drop since February 2008.

Sales of existing houses

The report follows news on Thursday that single-family home construction and future building permits fell to the lowest levels since May 2020. Housing inventory also fell.

The 30-year fixed mortgage rate crossed the 7% mark in October for the first time since 2002, according to data from mortgage finance agency Freddie Mac. The rate averaged 6.61% over the past week. The US central bank’s rate hike cycle, the fastest since the 1980s, has heightened recession risks.

A separate Conference Board report released on Friday showed that the leading indicator, a gauge of future U.S. economic activity, fell 0.8% in October after falling 0.5% in September. The index has now fallen for eight consecutive months.

“The growth trajectory looks weak,” said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina. “A deteriorating housing market, throbbing inflation and an aggressive Fed put the economy on uncertain footing for 2023.”

A ‘sold’ sign is seen outside a recently purchased home in Washington, U.S., July 7, 2022. REUTERS/Sarah Silbiger/File Photo

Wall Street stocks rose. The dollar remained stable against a basket of currencies. US Treasury prices fell.

Main economic indicators

MULTIPLE OFFERS

Sales of existing homes fell sharply in all four regions. Sales were also down across all price points year-over-year. Although demand is weakening, housing supply remains tight, limiting the slowdown in house price inflation.

The median price of existing homes rose 6.6% from a year earlier to $379,100 in October. It marked 128 consecutive months of year-on-year house price increases, the longest such streak on record. Although price growth has slowed from the peak in June, in line with normal trends, the NAR estimated that prices in October were significantly higher than their pre-pandemic level.

The group of real estate agents also reported that several offers continued in certain areas and that 24% of homes sold last month were above the asking price, reflecting the still tight inventory environment. In contrast, homes that were unsold after more than 120 days saw their prices fall by an average of 15.8%.

There were 1.22 million already owned homes on the market, down 0.8% from September and a year ago.

New listings were about 10% to 20% lower in most areas compared to October 2021. Higher borrowing costs are discouraging homeowners, who would normally want to downsize or upgrade, from putting their homes on the market.

At the pace of October sales, it would take 3.3 months to deplete the current inventory of existing homes, compared to 2.4 months a year ago. This increase was mainly due to the decrease in the number of buyers in the market. A four to seven month supply is considered a healthy balance between supply and demand.

Properties generally remained on the market for 21 days last month, compared to 19 days in September. Sixty-four percent of homes sold in October 2022 had been on the market for less than a month.

First-time buyers accounted for 28% of purchases, compared to 29% in September and a year ago. Cash sales accounted for 26% of transactions, compared to 24% a year ago.

“The recent downward movement in mortgage rates may provide some respite in the coming months, but with home values ​​appearing to be holding up, affordability issues remain front and center,” said Nicole Bachaud, senior economist at Zillow. in Seattle.

Reporting by Lucia Mutikani; Editing by Paul Simao and Andrea Ricci

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