Existing Home Sales Drop
In September, sales of previously owned homes in the United States dropped for the fourth consecutive month, hitting their slowest pace in over a decade. The housing market is facing challenges from surging mortgage rates and a historic low in available properties.
Existing home sales decreased by 2% in September compared to August, reaching a seasonally adjusted annual rate of 3.96 million, as reported by the National Association of Realtors. Although this figure slightly exceeded the expected pace of 3.9 million units, it marks the slowest sales rate since October 2010, when the housing market was still grappling with the aftermath of the foreclosure crisis triggered by the housing bust years earlier.
Sales also registered a significant 15.4% decline compared to the same month the previous year. For the first nine months of the year, sales are down by 21% compared to the same period in 2022.
Despite the slowdown in existing home sales, home prices continued to rise year-on-year. The national median sales price increased by 2.8% from September of the previous year, reaching $394,300. However, it did experience a 3.1% dip from the previous month.
Lawrence Yun, the chief economist of the National Association of Realtors, noted that limited inventory and the surge in mortgage rates are contributing to the slump in the home sales market. Yun expects mortgage rates to ease by the spring, providing some relief to the market.
The average weekly rate for a 30-year mortgage surpassed 7% in August, and it has remained above that level since then, reaching 7.57% recently, the highest since 2000, according to Freddie Mac.
These high rates add significant costs for borrowers and limit their purchasing power, exacerbating an already unaffordable housing market. The high rates also discourage homeowners who locked in low rates in the past from selling their homes.
The increase in mortgage rates is closely linked to the rise in the 10-year Treasury yield, which serves as a reference for loan pricing by lenders. Investor expectations of future inflation, global demand for US Treasuries, and decisions by the Federal Reserve can influence mortgage rates.
The Federal Reserve has raised its main interest rate to the highest level since 2001 in an effort to combat high inflation, and it has hinted at reducing rates less than previously anticipated in the coming year. These expectations have driven Treasury yields to their highest levels in over a decade.
While the surging mortgage rates have restricted access to the housing market for many potential buyers, a chronic shortage of homes for sale has kept the market highly competitive, particularly for affordable homes.
Homes are selling rapidly, with a typical turnaround of just 21 days on the market. About 26% of homes sold for more than their listed price.
Although there was a 2.7% increase in the number of homes on the market at the end of September compared to August, it remains 8.1% lower than the previous year. This results in a supply of just 3.4 months at the current sales pace, far below the 4- to 5-month supply indicative of a balanced market.
First-time homebuyers, who often lack the home equity required for down payments, have been disproportionately affected by the combination of rising mortgage rates and escalating prices. They represented only 27% of all home sales in the past month, a significant drop from the historical norm of 40% of total sales.
In contrast, cash buyers are becoming more prevalent in the market. In September, all-cash transactions accounted for 29% of all home sales, compared to the typical 20% share. The last time all-cash transactions played such a significant role in home sales was during the foreclosure crisis in the late 2000s.
Featured image: Megapixl © Sarawutnirothon
