By Lucia Mutikani
WASHINGTON (Reuters) – U.S. existing home sales fell for a record ninth consecutive month in October as the fixed 30-year mortgage rate hit a 20-year high and prices remained high, pushing homeownership out of reach for many Americans.
Despite a broad drop in sales reported by the National Association of Realtors on Friday, housing supply remained tight, with significantly fewer homes coming on the market than last year. The housing market is the sector hardest hit by the Federal Reserve’s aggressive rate hikes, which are aimed at suppressing high inflation by reducing demand in the economy.
“The combination of rising home prices and mortgage rates has driven housing affordability down,” said Daniel Vielhaber, economist at Nationwide in Columbus, Ohio. “The decline in affordability is partly by design. The Fed’s goal of slowing economic demand by raising interest rates starts with home sales.”
Existing home sales fell 5.9% to a seasonally adjusted annual rate of 4.43 million units last month. Excluding the dip during the initial phase of the COVID-19 pandemic in the spring of 2020, this was the lowest level since December 2011.
Economists polled by Reuters had expected home sales to fall to 4.38 million units.
Home resales, which account for a large portion of US home sales, fell 28.4% year over year in October. This was the biggest drop since February 2008.
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The report followed news on Thursday that new single-family home starts and permits for future construction fell to their lowest levels since May 2020. Housing inventory also fell.
The 30-year fixed mortgage rate topped 7 percent in October for the first time since 2002, according to data from mortgage lender Freddie Mac. The rate averaged 6.61% over the past week. The US central bank’s rate hike cycle, the fastest since the 1980s, has raised recession risks.
A separate report from the Conference Board on Friday showed that the leading index, a measure of future US economic activity, fell 0.8% in October after slipping 0.5% in September. The index has now fallen for eight consecutive months.
“The growth trajectory looks weak,” said Jeffrey Roach, chief economist at LPL Financial in Charlotte, North Carolina. “A worsening housing market, nagging inflation and an aggressive Fed put the economy on an uncertain footing for 2023.”
Wall Street stocks moved higher. The dollar was flat against a basket of currencies. US bond prices fell.
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Existing home sales fell sharply in all four regions. Sales were also down across all price points year over year. Even as demand weakens, housing supply remains tight, limiting the slowdown in house price inflation.
The median price of an existing home rose 6.6% from a year earlier to $379,100 in October. This marked 128 consecutive months of year-over-year home price gains, the longest such streak on record. Although price growth slowed from the June peak, in line with normal trends, NAR estimated that prices in October were significantly higher than the pre-pandemic level.
The brokerage group also said multiple offers continued in some areas and 24% of homes sold last month were above asking price, reflecting the still-tight inventory environment. On the other hand, homes that didn’t sell after more than 120 days saw prices drop by an average of 15.8%.
There were 1.22 million previously owned homes on the market, down 0.8% from both September and a year ago.
New listings were about 10% to 20% lower in most areas compared to October 2021. Higher borrowing costs are discouraging homeowners who would normally want to downsize or upgrade from putting their homes on the market.
At October’s sales rate, it would take 3.3 months to exhaust the current inventory of existing homes, up from 2.4 months a year ago. This rise was mainly due to fewer buyers being in the market. A supply of four to seven months is considered a healthy balance between supply and demand.
Properties typically stayed on the market for 21 days last month, up from 19 days in September. 64% of homes sold in October 2022 were on the market for less than a month.
First-time buyers accounted for 28% of purchases, up from 29% in September and a year earlier. Cash sales made up 26% of transactions, up from 24% a year ago.
“The recent downward move in mortgage rates may provide some relief in the coming months, but with home values looking strong, affordability challenges remain front and center,” said Nicole Bachaud, senior economist at Zillow in Seattle.
(Reporting by Lucia Mutikani; Editing by Paul Simao and Andrea Ricci)