Home sales in October sputtered to their slowest pace in 13 years as rising mortgage rates squeezed buyers and sellers out of the market. Brighter days could be around the corner for the housing market—but it will take time for any pickup to appear in home-sales data.
Previously owned home in October were sold at a seasonally adjusted annual rate of 3.79 million, the National Association of Realtors said Tuesday. Such a rate was 4.1% lower than September’s pace and the lowest rate since August 2010, according to historic data. Economists had expected a shallower slump to a rate of 3.9 million, according to FactSet.
“Prospective home buyers experienced another difficult month due to the persistent lack of housing inventory and the highest mortgage rates in a generation,” Lawrence Yun, the trade group’s chief economist, said in a statement. “Multiple offers, however, are still occurring, especially on starter and mid-priced homes, even as price concessions are happening in the upper end of the market.”
Yun noted that October’s sales reflect those that went into contract as mortgage rates were rising in August, September, and October. Homes typically take one to two months to close after going under contract.
As sales slowed, prices rose from year-ago levels. The median home in October sold for $391,800, up 3.4% from one year prior. There were 1.15 million units on the market at the end of October, according to the data—a 1.8% gain from September but 5.7% lower than one year prior. Higher mortgage rates have likely encouraged some homeowners who otherwise would list to stay in place, a phenomenon commonly referred to as the “mortgage rate lock-in effect.”
Distressed sales represented 2% of all sales in October, according to the trade group. That’s a small share of the market, but represents an increase from 1% in September. Anecdotally, Yun says, agents have said that some owners who paused mortgage payments through loan forbearance policies earlier in the pandemic are now unable to pay their loans due to life circumstances such as job loss and are now facing short sales.
October’s sales report was dismal—but leading data suggests lower mortgage rates have brought some prospective buyers off the sidelines. Mortgage rates measured weekly by
Freddie Mac
have dropped by 0.35 percentage points since the final week in October, when the survey’s 30-year fixed rate peaked at a multidecade high of 7.79%.
Demand for home purchase loan applications measured weekly by Mortgage Bankers Association have increased for two straight weeks—albeit from the lowest level since the mid-90s.
“Fortunately, mortgage rates have fallen for the third straight week, stirring up buying interest,” Yun said in a statement. “Though limited now, expect housing inventory to improve after this winter and heading into the spring. More inventory will result in more home sales.”
It will take time to see how lower rates and applications translate into sales. Pending sales in October, an index measuring the number of previously-owned homes that went under contract, are expected to have fallen as mortgage rates peaked, according to FactSet. The data is expected on Nov. 30.
Mortgage rates’ descent in November from their peak, combined with recent gains in home loan applications, suggests November’s pending home sales report, expected late next month, will be the data to watch for a turnaround. Economists expect that mortgage rates will fall in 2024, which could spur more buying.
Previously owned homes typically comprise the largest share of all home sales, making the National Association of Realtors data a bell-weather for the housing market more broadly—but the smaller market for newly built homes remained strong, even as mortgage rates rose.
New home sales, a measure of contract signings, rose in September to its highest seasonally adjusted annual rate since February 2022, according to government data. Consensus expects that new homes in October were sold at a seasonally adjusted annual rate of 700,000—down from September’s rate, but still above the average 614,000-unit pace since January 2010. The data is set for release Nov. 27.
Write to Shaina Mishkin at [email protected]
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