The housing market slumped further in October as U.S. home sales fell again, hitting the lowest level in more than 16 years.
Mortgage rates have soared past 7 percent while home prices stay stubbornly high, keeping buyers on the sidelines and discouraging would-be sellers from listing their homes and moving. Sellers don’t want to give up their lower mortgage rates, so they don’t have much incentive to drop prices enough to attract buyers.
“People can’t afford the price that people are trying to sell their houses for, with mortgage rates what they are,” said Richard Green, director of University of Southern California’s Lusk Center for Real Estate.
Existing-home sales fell to a seasonally adjusted annual rate of 3.75 million last month, according to a report from the National Association of Realtors. That’s a 5.5 percent decrease from September and the lowest level since August 2010, when the economy was recovering from the Great Recession.
“Home buying is difficult when mortgage rates have climbed to their highest levels since 2000, aside from a single month in 2023,” NAR Chief Economist Lawrence Yun said in a statement.
At the same time, home prices are still increasing for existing homes, rising 0.4 percent from a year ago, according to NAR. Home prices are significantly elevated from their pre-pandemic levels, further discouraging buyers from jumping into the market.
The housing market fell into disarray during the Great Recession amid the collapse of a housing bubble and a subprime mortgage crisis. Several factors are different now, said Jessica Lautz, deputy chief economist at NAR. Distressed home sales are only a tiny part of the market. People are hanging onto their homes because of low mortgage rates and because rising values mean they’re building wealth.
Housing prices are rising on a year-over-year basis, but not as fast as inflation.
“That means people do have buying power, but it really comes down to ability to find a home they can afford,” Lautz said.
With rising rates and costs, buying a median-priced home now means shelling out far more — an estimated $2,468 per month, or an 85 percent increase over what typical homeowners pay, according to a new report from Realtor.com.
The typical current homeowner with a mortgage spends $1,332 in monthly principal and interest and holds a 4 percent rate. Realtor.com’s calculations assume new buyers pay a 14.3 percent down payment and hold a mortgage rate of 7.32 percent.
For years, Americans have been reluctant to sell their homes and buy new ones, even if they are looking to expand, downsize or relocate, because they have locked in relatively low mortgage rates. Rates have been on the rise this year, as the Federal Reserve has started increasing borrowing costs, and Treasury yields surge under geopolitical uncertainty.
That has kept inventory low and some would-be buyers on the sidelines. Though that dynamic has started to ease slightly, and inventory has picked up a bit, Realtor.com’s report shows that moving still often means taking on a significantly larger monthly payment.
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