Existing Home Sales Plummet to Lowest Levels Since Great Recession as Mortgage Rates Soar
Home sales in the United States have reached troubling lows not seen since the aftermath of the Great Recession, according to data released on Thursday. The National Association of Realtors reported that existing home sales in September fell below the significant threshold of 4 million homes sold annually.
Meanwhile, housing prices continue to stubbornly remain high, despite the highest mortgage rates in 23 years. The median price of homes sold last month reached $394,300, marking a 2.8% increase from the same period in 2022 but a 3.1% decline from August.
Federal Reserve Chairman Jerome Powell addressed the situation during a speech at the Economic Club of New York Luncheon on Thursday. Powell stated that there should be no expectation of interest rate cuts in the near future. He emphasized the Fed’s commitment to bringing inflation down sustainably to the target rate of 2%, acknowledging that the path ahead may be challenging.
Since the year 2000, the average number of annualized home sales was approximately 5.3 million per month. Only eight other months, all following the 2007-08 financial crisis, recorded lower sales figures than September. Notably, July 2010 experienced the lowest point, with only 3.45 million homes sold.
The decline in home sales can be traced back to 2022 when the Federal Reserve announced its plans to raise interest rates in an effort to combat the 40-year high inflation. Mortgage rates have more than doubled since then, resulting in increased monthly payments for new homeowners.
Although the contraction in the housing market has not affected every region or price point equally, declines have been observed across the board since 2022.
Despite the overall decline, nearly 50% of homes sold in the U.S. in September were located in the South. Homes priced between $250,000 and $500,000 constituted the majority of purchases, but even this category experienced a 15.5% decrease compared to the previous year. The steepest decline was observed in homes priced between $100,000 and $250,000, which saw a 23.4% drop since September 2022.
Industry experts have offered several possible explanations for the ongoing decline in home sales. One prominent factor is the persistently high prices. September’s median sales price of $394,300 ranks among the top 10 months since 2000, standing out as the only fall month when prices typically decrease.
Another contributing factor is the shortage of available housing inventory. Currently, there is a 3.4-month supply of houses on the market based on current sales rates. An ideal balance between buyers and sellers would require a 4- to 5-month supply.
Additionally, the soaring mortgage rates deter homeowners who benefited from historically low rates in recent years from pursuing new mortgages with rates that could be more than double their current ones. According to a report from Freddie Mac, the average 30-year mortgage rate now stands at 7.63%. This increase has led to a decline in first-time buyers, while cash sales surged from 22% to 29% in September.
As for future interest rates, Powell and other Federal Reserve officials maintain that there will be no reduction in rates in the foreseeable future. According to the CME FedWatch Tool, 98% of investors anticipate that the Fed will keep interest rates steady following its next meeting on November 1.
Powell acknowledged the delicate balancing act the Fed faces, stating that doing too little could enable above-target inflation to take hold, while doing too much could harm the economy unnecessarily. He emphasized the importance of sustained progress toward the goal of lowering inflation.
The current state of the housing market raises concerns about its impact on the economy. It remains to be seen how long it will take for the market to recover from the challenges it faces.
*Contributing: The Associated Press*