Housing Market Sees Sharpest Decline in Over a Decade as Mortgage Rates Surge
In September, the housing market witnessed a significant downturn, hitting its lowest point in nearly 13 years, with further declines anticipated. The National Association of Realtors reported a seasonally adjusted annual rate of 3.96 million sales of previously owned homes, marking a 2% decrease from August and the slowest pace since October 2010. This decline is attributed to the adverse effects of escalating mortgage rates, which have dampened both buyer demand and homeowners' willingness to sell.
Lawrence Yun, the Chief Economist of the National Association of Realtors, expressed concern about the potential implications of Americans refraining from moving. He questioned whether this shift in behaviour is a temporary phenomenon or indicative of a fundamental change in the American way of life.
Contrary to economists' expectations, the decline in sales was less steep than projected, with sales coming in at 15.4% lower than the previous year. Despite the slump in sales, home prices continued to rise, albeit at a slower rate than in August—the median existing home sold for $394,300, reflecting a 2.8% increase from the previous year.
A scarcity of available homes was identified as a critical factor contributing to the decline, with only 1.13 million units for sale at the end of September, an 8.1% decrease compared to the previous year. Yun identified limited inventory and reduced housing affordability as persistent challenges affecting the housing market throughout the year.
Yun predicted that mortgage rates could reach 8% soon, possibly persisting for the rest of the year. This forecast aligns with the recent surge, as daily rates measured by Mortgage News Daily reached 8%, the highest level in 23 years. The impact of higher rates is evident in the prevalence of cash buyers, who represented 29% of all transactions in September. Notably, all-cash buyers surpassed first-time buyers in market share, a departure from the norm, with investors and second-home buyers contributing significantly to cash transactions.
The impact of rising rates on home sales may still need to be fully reflected in monthly data, as evidenced by the Mortgage Bankers Association reporting the lowest level of home loan applications since 1995. As a result, the National Association of Realtors is expected to revise its quarterly forecast downward, reflecting the challenging conditions in the housing market. Projections from Redfin indicate that existing home sales for the year are poised to be the lowest since 2008.