US existing home sales decline; Shortage of inventories drives prices up According to Reuters
© Reuters. FILE PHOTO: A “sold” sign is seen outside a newly purchased home in Washington, U.S., July 7, 2022. REUTERS/Sarah Silbiger/File Photo
By Lucia Mutikani
WASHINGTON (Reuters) – U.S. existing-home sales fell for a ninth straight month in October as 30-year fixed mortgage rates hit a 20-year high and prices remained elevated, pushing up homeownership. Home ownership is out of reach for many Americans.
Despite the drop in sales reported by the National Association of Realtors on Friday, housing supply remains tight, with significantly fewer homes hitting the market than the previous year. The housing market has been the hardest hit by the Federal Reserve’s aggressive interest rate hikes aimed at quelling 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 by design to some extent. The Fed’s goal is to slow economic demand by raising interest rates starting with home sales.”
Existing home sales fell 5.9% to a seasonally adjusted annualized rate of 4.43 million units last month. Apart from the plunge in the early stages of the COVID-19 pandemic in the spring of 2020, this is the lowest level since December 2011.
Economists polled by Reuters had forecast home sales to fall to 4.38 million units.
Home resale sales, which make up the bulk of home sales in the United States, fell 28.4 percent year-over-year in October. That was the biggest drop since February 2008.
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The report follows news on Thursday that single-family home construction and future building permits have fallen to their lowest levels since May 2020. Housing inventories also fell.
The 30-year fixed mortgage rate breached 7% in October for the first time since 2002, according to data from the mortgage finance agency. Freddie Mac (OTC:). The average rate was 6.61% in the most recent week. The US central bank’s rate hike cycle, 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 measure of future US economic activity, fell 0.8 percent in October after sliding 0.5 percent in September. The index has now fallen for eight consecutive months.
“The growth trajectory looks weak,” said Jeffrey Roach, chief economist at LPL Financial (NASDAQ:) in Charlotte, North Carolina. “The worsening housing market, persistent inflation and an aggressive Fed place the economy in uncertainty for 2023.”
Stocks on Wall Street rallied. The dollar was stable against a basket of currencies. US Treasuries fell.
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Existing home sales fell sharply in all four regions. Sales also fell across all price points on a yearly basis. Even as demand weakens, housing supply remains tight, limiting the pace of house price inflation to slow.
The median existing home price rose 6.6% from a year earlier to $379,100 in October. That marked 128 consecutive months of year-over-year increases, the longest streak on record. While the pace of price growth has slowed since June’s peak, trend normal, NAR estimates that prices in October are significantly higher than pre-pandemic levels.
The brokerage group also said more sales continued in some areas and 24 percent of homes sold last month were above asking price, reflecting a tight inventory situation. On the other hand, homes that didn’t sell for more than 120 days saw an average price drop of 15.8%.
There are 1.22 million previously owned homes on the market, down 0.8% from both September and a year ago.
New listings are about 10% to 20% lower in most areas than they were in October 2021. Higher borrowing costs are deterring homeowners, who typically want to downsize or upgrade, from bringing their home in. they go to market.
At October’s sales pace, it would take 3.3 months to use up the current inventory of existing homes, up from 2.4 months a year ago. That increase is mainly due to fewer buyers in the market. A four- to seven-month supply is considered a healthy balance between supply and demand.
Properties typically stayed on the market for 21 days last month, up from 19 days in September. Sixty-four percent of homes sold in October 2022 were on the market for less than a month.
First-time buyers accounted for 28% of purchases, down from 29% in September and a year ago. All-cash sales accounted for 26% of transactions, up from 24% a year ago.
“The recent drop in mortgage rates could help ease some of the trouble in the coming months, but with home values still seemingly high,” said Nicole Bachaud, senior economist at Zillow in Seattle. affordability challenges remain a top priority.