Sales of existing homes have fallen for a ninth straight month and are now at the lowest level since early in the pandemic.
The hit to the housing market reflects the Federal Reserve’s efforts to lower inflation by raising interest rates, which has put home-buying out of reach for many.
Existing-home sales plunged by 5.9% in October to a seasonally adjusted annual rate of 4.43 million, according to a report by the National Association of Realtors released Friday. Sales were down nearly 30% from a year ago.
While existing home sales dipped lower for a time during the pandemic, other than that, they are now the lowest they have been in more than a decade.
Despite the fast-falling number of sales, prices of homes are still high, although price growth is slowing. The median price of an existing home in October was $379,100, a growth of 6.6% from the year before.
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“More potential homebuyers were squeezed out from qualifying for a mortgage in October as mortgage rates climbed higher,” said NAR chief economist Lawrence Yun. “The impact is greater in expensive areas of the country and in markets that witnessed significant home price gains in recent years.”
The numbers are a result of the Federal Reserve raising interest rates in order to tamp down inflation. When the Fed raises interest rates, it causes mortgage rates also to rise and make housing more unaffordable and buying less attractive.
As of Friday, the average rate on a 30-year fixed-rate mortgage is at 6.65%, more than double what it was the year before, according to the Mortgage Bankers Association. That is a more than 1-point jump since just the start of August. The rate on an average 15-year fixed-rate mortgage is at 6.10%.
The dynamic is also reflected in housing starts, which measure the annualized change in the number of new residential buildings that began construction.
Housing starts fell 4.2% last month to an annual rate of 1.425 million units, according to data from the Commerce Department released this week.
“Even as days on the market are lengthening, overall housing inventory still remains near historic lows. New listings are actually lower compared to the same period a year ago. That means once the gate opens a bit for home buyers, we could again face a housing shortage,” said Yun.
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The languishing housing market is leading many economists to believe that a full-blown recession, brought on by the Fed’s aggressive tightening cycle, is possible next year.
While raising interest rates drives down inflation, an unfortunate side effect of doing so is that the economy slows. Given the pace of the rate hikes, many economists see a recession as a near-certainty as the economy catches up with the rapid rate increases.
