US Existing Home Sales Drop to 13-Year Low in September
Introduction
U.S. existing home sales have reached a 13-year low in September due to rising mortgage rates and a limited supply of homes, making it difficult for first-time buyers to afford a home.
Decline in Sales
According to the National Association of Realtors, existing home sales decreased by 2.0% last month to a seasonally adjusted annual rate of 3.96 million units. This is the lowest level since October 2010. The decline in sales can be attributed to the surge in mortgage rates, with the popular 30-year fixed mortgage rate exceeding 7% in August.
Regional Variations
Economists had predicted a decline in home sales to a rate of 3.89 million units. The sales in the South dropped by 1.1%, while the Midwest witnessed a decline of 4.1%. On the other hand, the Northeast experienced a 4.2% increase, and the West saw a slump of 5.3%.
Impact on Housing Market
Home resales, which contribute significantly to the U.S. housing market, have declined by 15.4% compared to the previous year. The limited inventory of homes and low affordability continue to hinder home sales, as stated by NAR Chief Economist Lawrence Yun. The rising mortgage rates are also impacting the market negatively.
Further Slump in Sales Expected
The market for previously owned homes was showing signs of stabilization at lower levels. However, the recent data from the Mortgage Bankers Association indicates that applications for home purchase loans have plunged to levels last seen in 1995. This decline can be attributed to the average contract interest rate on a 30-year fixed-rate mortgage, which rose to 7.70%, the highest since November 2000.
Reasons for Rising Mortgage Rates
Mortgage rates have increased in line with the yield on the benchmark 10-year Treasury note, which has reached a 16-year high. This rise is mainly due to expectations that the Federal Reserve will keep interest rates higher for a longer duration in response to the economy’s resilience. The current benchmark overnight interest rate stands at 5.25%-5.50%.
Inventory and Price
In September, there were 1.13 million previously owned homes on the market, which is an 8.1% decrease from the previous year. At the current sales pace, it would take 3.4 months to exhaust the existing inventory of homes, compared to 3.2 months a year ago. A healthy balance between supply and demand is considered to be a four-to-seven-month supply. The median existing house price increased by 2.8% from the previous year to $394,300, the highest ever for any September.
Market Trends
Properties typically remained on the market for 21 days in September, longer than the 19 days in the previous year. First-time buyers accounted for 27% of sales, a decrease from 29% in the previous year. All-cash sales represented 29% of transactions, compared to 22% in the previous year. Distressed sales, including foreclosures, remained unchanged at 1% of transactions.
It is evident that the U.S. existing home sales market is facing challenges due to rising mortgage rates and limited housing supply. The decline in sales is expected to continue, putting further pressure on the market. Efforts to address these issues and stabilize the housing market will be crucial in the coming months.
