Existing-home sales declined for the ninth straight month in October, falling 5.9 percent from September, according to the National Association of Realtors (NAR), revealing the demand-dampening effects of higher interest rates amid decades-high inflation.
Existing-home sales for October registered a seasonally adjusted annual rate of 4.43 million, a fall of 28.4 percent from 6.19 million in 2021. “More potential homebuyers were squeezed out from qualifying for a mortgage in October as mortgage rates climbed higher,” said Lawrence Yun, the NAR’s chief economist. “The impact is greater in expensive areas of the country and in markets that witnessed significant home price gains in recent years.”
The average 30-year fixed-rate mortgage rate is 6.65 percent, as of Nov. 17, according to Mortgage News Daily, which is an increase of more than 105 percent from 3.24 percent in 2021. Less borrowing power due to interest-rate hikes combined with elevated home prices leads to lower home sales due to affordability issues.
According to the NAR, the median sales price in October of previously owned homes rose to $379,100, an increase of 6.6 percent from 2021, while the unsold inventory dropped for the third consecutive month, to 1.22 million, indicating homebuilder pessimism. The current inventory is equivalent to 3.3 months’ supply at the present sales pace.
The NAHB/Wells Fargo Housing Market Index (HMI), which measures homebuilder sentiment, declined five points, to 33, and registered the eleventh consecutive monthly decline. This is the index’s lowest reading since June 2012, with the sole exception being the spring of 2020 during the COVID-19 outbreak.
US Home Inventory Shortages
The housing inventory of 1.22 million units registered at the end of October was down 0.8 percent from the prior month and 1.23 million in 2021. There was a 3.1 months’ supply of homes in September, which has gone up to 3.3 months in October.“Inventory levels are still tight, which is why some homes for sale are still receiving multiple offers,” Yun said. “In October, 24 percent of homes received over the asking price. Conversely, homes sitting on the market for more than 120 days saw prices reduced by an average of 15.8 percent.”
With first-time buyers accounting for 28 percent of sales in October, properties remained on the market for 21 days on average during the month. The number has gone up from 19 in September and 18 last year.
All-cash sales, many of whom are individual investors or second-homebuyers, made up 26 percent of October’s transactions, up from 26 percent in September.
“Mortgage rates have come down since peaking in mid-November, so home sales may be close to reaching the bottom in the current housing cycle,” Yun said.
Meanwhile, the 12-month Consumer Price Index (CPI), a measure of annual inflation, fell to 7.7 percent in October from 8.2 percent in September. An analysis by Morning Consult suggests that the core CPI inflation is likely to rise in November following the October decline.
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