US Housing Market Struggles: October Records Lowest Sales in 13 Years
22 Nov 2023
US existing-home sales fall to a record low of over 13 years, while prices accelerate.
In October, existing home sales in the U.S. plunged to the lowest point in over 13 years, driven by the steepest mortgage rates in two decades and a scarcity of available houses, prompting buyers to withdraw from the market.
The National Association of Realtors report on Tuesday highlighted that last month’s median house price was the highest ever recorded for any October. Unless there is a recovery in November and December, home resales in the current year are heading toward their poorest performance since 1992.
“The market is at a standstill due to the combination of elevated prices, high mortgage rates, and a large number of homeowners reluctant to move as they have secured low rates,” explained Robert Frick, a corporate economist at Navy Federal Credit Union in Vienna, Virginia.
Home resales fell by 4.1% last month, reaching a seasonally adjusted annual rate of 3.79 million units. This marks the lowest level since August 2010 when sales were on the decline after the expiration of a government tax credit for homebuyers.
The counting of home resales occurs at the contract’s closure. Sales in October are likely indicative of contracts signed in the preceding two months, coinciding with a notable increase in the average rate of the popular 30-year fixed-rate mortgage, reaching levels last observed in late 2000.
According to economists surveyed by Reuters, the projected rate for home sales was expected to decline to 3.90 million units. Sales experienced a decrease in the Northeast, West, and heavily populated South while remaining unchanged in the Midwest, which is considered the most affordable region.
In October, home resale, constituting a significant portion of U.S. housing transactions, experienced a substantial 14.6% decline compared to the same period last year.
According to data from mortgage finance agency Freddie Mac, the average rate on the widely used 30-year fixed-rate mortgage stood at 7.31% in the last week of September. It reached its peak at 7.79% in late October, marking the highest level since November 2000.
Although it has moderated after recent data indicated a cooling labour market and subsiding inflation, the rate averaged a still-elevated 7.44% last week. Tuesday’s publication of the Federal Reserve’s Oct. 31-Nov. 1 meeting minutes revealed that “a few participants noted a flattening out of activity in the housing sector in recent months, likely reflecting the impact of further increases in mortgage rates from already elevated levels.”
The housing market has been significantly affected by the U.S. central bank’s assertive monetary policy tightening, resulting in nine consecutive quarters of contraction in residential investment. The sector rebounded in the third quarter, attributed to builders capitalizing on the housing shortage.
Wall Street stocks were trading lower, the dollar strengthened against a basket of currencies, and U.S. Treasury prices showed mixed movements.
Last month, the market had 1.15 million pre-owned homes available, indicating a 5.7% decline from a year earlier. The majority of homeowners benefit from mortgage rates below 5%, leading many to hesitate in selling. Prior to the pandemic, there were nearly 2 million homes listed for sale.
Lawrence Yun, the Chief Economist of the National Association of Realtors (NAR), mentioned that realtors will engage with their representatives in the U.S. Congress to discuss a potential government tax incentive for long-term homeowners, aiming to encourage them to list their homes.
Yun also highlighted that even if mortgage rates continue to decrease alongside U.S. 10-year Treasury yields, affordability will remain a challenge due to insufficient supply. The shortage of pre-owned homes is driving increased demand for new homes.
At the current rate of October’s sales, it would require 3.6 months to deplete the existing inventory of homes, marking an increase from 3.3 months compared to a year ago. A balanced market typically maintains a four-to-seven-month supply, signifying a healthy equilibrium between supply and demand. There is a severe shortage of houses within the $100,000-$250,000 price range.
Despite increased construction activity in new housing projects by builders, they are hindered by elevated borrowing costs.