A sale sign outside a home in Wyndmoor, Pa., on June 22, 2022.Matt Rourke/The Associated Press
U.S. existing home sales dropped to a 14-year low in September, weighed down by higher mortgage rates and house prices.
The second straight monthly decline in home resales reinforced economists’ views that the slump in residential investment, which includes homebuilding, deepened in the third quarter. The housing market has struggled to rebound after being knocked down by a resurgence in mortgage rates in the spring.
Though supply has improved, entry-level homes remain scarce in most regions of the country, keeping home prices at levels that are unaffordable for most first-time buyers.
“It will take more rate cuts and more options to bring buyers back,” said Jennifer Lee, a senior economist at BMO Capital Markets.
Home sales fell 1.0% last month to a seasonally adjusted annual rate of 3.84 million units, the lowest level since October 2010, the National Association of Realtors said on Wednesday. Economists polled by Reuters had forecast home resales would be unchanged at a rate of 3.86 million units.
Sales likely reflected contracts signed a month or two ago, when mortgage rates were quite elevated.
Home resales, which account for a large portion of U.S. housing sales, decreased 3.5% on a year-on-year basis in September. Sales fell 1.7% in the South, with some of the decline attributed to weakness in Florida following the devastation caused by Hurricane Helene. Sales in the state could remain depressed after it was slammed by Hurricane Milton weeks later.
The Northeast and Midwest also experienced a decrease in sales, but activity increased in the West.
Mortgage rates initially dropped after the Federal Reserve began cutting interest rates last month, but they have risen over the past three weeks as solid economic data, including retail sales and annual revisions to national accounts, forced traders to abandon expectations for another 50-basis-point rate cut next month.
The rate on the popular 30-year fixed mortgage averaged 6.44% last week. Though that was higher than the 6.08% average at the end of September, it was well below the 7.63% a year ago, data from mortgage finance agency Freddie Mac showed.
Signs of potential homebuyers hugging the sidelines in anticipation of even lower borrowing costs were evident in government data last week showing a marginal increase in single-family building permits in September.
Stocks on Wall Street traded lower. The dollar rose against a basket of currencies. U.S. Treasury prices fell, with the yield on the benchmark 10-year note hitting a three-month high.
The NAR speculated that the upcoming Nov. 5 U.S. presidential election could be making prospective homeowners hesitant to commit themselves. There is, however, no hard evidence that the election is influencing buying decisions.
Residential investment subtracted from gross domestic product in the second quarter. Growth estimates for the third quarter are as high as a 3.4% rate. The economy grew at a 3.0% pace in the April-June quarter.
“With mortgage rates backing up lately, a broad-based recovery in the residential housing sector is likely to take longer than expected,” said Christopher Rupkey, chief economist at FWDBONDS.
Housing inventory increased 1.5% to 1.39 million units last month, the highest since October 2020. Supply surged 23.0% from one year ago. Nonetheless, supply is below the 1.8 million units seen before the COVID-19 pandemic.
Despite the improving supply, the median existing home price increased 3.0% from a year earlier to $404,500 in September, the highest for any September. Home prices rose in all four regions. About 20% of the homes were sold above their listing price.
At September’s sales pace, it would take 4.3 months to exhaust the current inventory of existing homes, the highest since May 2020 and up from 3.4 months a year ago. A four-to-seven-month supply is viewed as a healthy balance between supply and demand.
Properties typically stayed on the market for 28 days in September compared to 21 days a year ago. First-time buyers accounted for 26% of sales versus 27% a year ago.
That share remains below the 40% that economists and realtors say is needed for a robust housing market.
All-cash sales made up 30% of transactions, up from 29% a year ago. Distressed sales, including foreclosures, represented only 2% of transactions, virtually unchanged from last year.