Existing home sales plummet in US; tight inventory keeps prices rising

By Lucia Mutikani

WASHINGTON (Reuters) – US existing home sales plummeted for a record ninth consecutive month in October as 30-year fixed mortgage rates hit a 20-year high and prices remained high, putting homeownership out of reach for many Americans fell.

Despite the overall sales decline reported Friday by the National Association of Realtors, housing supply remained tight, with significantly fewer homes coming onto the market than in the previous year. The housing market has been the sector hardest hit by aggressive rate hikes by the Federal Reserve, which are designed to quell high inflation by dampening demand in the economy.

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

Existing home sales fell 5.9% last month to a seasonally adjusted annual rate of 4.43 million units. Excluding the plunge during the early stages of the COVID-19 pandemic in spring 2020, this was the lowest level since December 2011.

Economists polled by Reuters had forecast home sales to fall to 4.38 million units.

Home resales, which account for a large portion of US home sales, fell 28.4% year-on-year in October. That was the largest drop since February 2008.

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The report followed Thursday’s news that single-family home construction and permits for future construction fell to their lowest levels since May 2020. The housing stock also declined.

The 30-year fixed mortgage rate crossed 7% in October for the first time since 2002, according to data from mortgage financing agency Freddie Mac. The rate averaged 6.61% in the last week. The cycle of rate hikes by the US central bank, the fastest since the 1980s, has increased the risk of a recession.

A separate report from The Conference Board on Friday showed that the leading indicator, a gauge of future US economic activity, fell 0.8% in October, following a 0.5% fall 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, gnawing inflation and an aggressive Fed put the economy in an uncertain situation for 2023.”

Stocks on Wall Street rose. The dollar was stable against a basket of currencies. US Treasury bond prices fell.

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Sales of existing homes fell sharply in all four regions. Sales were also down year-over-year at all price points. Even if demand weakens, 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. That marked 128 consecutive months of year-over-year house price increases, the longest record streak on record. While price growth has slowed since its peak in June, in line with normal trends, the NAR estimated that October prices were significantly above pre-pandemic levels.

The realtor group also reported that multiple listings continued in some areas and that 24% of homes sold last month were above asking price, reflecting the still-tight inventory environment. On the other hand, homes that were unsold after more than 120 days saw prices fall by an average of 15.8%.

There were 1.22 million owner-occupied homes for sale, 0.8% less than in September and a year ago.

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

At the October sales rate, it would take 3.3 months to deplete the current stock of existing homes, compared to 2.4 months a year ago. This increase was mainly due to the fact that there were fewer buyers on the market. A supply of four to seven months is seen as a healthy balance between supply and demand.

Properties typically remained on sale 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.

New buyers accounted for 28% of purchases, up from 29% in September and a year ago. 26% of transactions were cash sales only, up from 24% a year ago.

“The recent downward movement in mortgage rates could provide some respite in the coming months, but as home values ​​appear to be strong, affordability issues remain high on the agenda,” said Nicole Bachaud, senior economist at Zillow in Seattle.

(Reporting by Lucia Mutikani; editing by Paul Simao and Andrea Ricci)

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