Annualized existing-home sales continue to fall, with last month heralding a slower autumn season as the housing market appears headed for some period of hibernation—though whether that time is short or extended remains unclear.
Existing-home sales fell 1.5%—a bigger drop than the previous month’s 0.4% decrease, but still proof that housing markets are not on the rebound yet, weighed down by broad economic uncertainty and inflated mortgage rates. Sales were down 23.8% from last year, and continue to track below 2019 levels.
“For four months in a row, the number of existing home sales nationally was lower than the same month during 2019,” said Bright MLS Chief Economist Dr. Lisa Sturtevant in a statement. “Monthly sales of existing homes have declined year-over-year for 13 consecutive months.”
In fact, sales hit their lowest rate in a decade, according to National Association of REALTORS® (NAR) Chief Economist Dr. Lawrence Yun. Yun added that the ongoing decline is outpacing the usual seasonal contraction in housing, with sales already down 7% from the spring.
While the decline in sales is certainly putting the squeeze on many real estate professionals, the crash that many fear has yet to materialize—though with more interest rate hikes from an aggressive Federal Reserve and untamed inflation still suffocating consumers nationwide—there is still danger ahead.
Yun, in a conference call with reporters this morning, highlighted what he described as an unusual disconnect between mortgage rates and the 10-year treasury yield, which usually track closely. He wondered if a lack of competition in the mortgage market was artificially inflating rates.
“Something is not right,” he said. “One option to consider is the financial mortgage service markets—there is not that much competition. So you have large companies, Chase, Wells Fargo and a few others…it’s very frustrating. If we had a normal spread, mortgage rates could be at 6% rather than 7%. I think it’s worth looking at whether or not there is some degree of market power among these large financial institutions.”
Despite all these dangers, a persistent lack of inventory is buoying prices and preventing an all-out rout in real estate, as the average existing home price remains 8.4% higher than last year at $384,900—well below 2021’s historic highs, but a good sign for the foundational strength of housing.
“Despite weaker sales, multiple offers are still occurring with more than a quarter of homes selling above list price due to limited inventory,” said Yun in a statement. “The current lack of supply underscores the vast contrast with the previous major market downturn from 2008 to 2010, when inventory levels were four times higher than they are today.”
Inventory actually shrank in September, with 1.25 million existing homes available at the end of the month, or 3.2 months worth of supply, 2.3% lower than the previous month. Last year, the market had 2.4 months worth of homes in September.
“The patterns create housing market conditions unlike we’ve ever seen,” said Sturtevant. “Demand has receded, but inventory has remained at near historically low levels. Buyers in the market still face competition, though they have a bit more leverage in the transaction.”
Other metrics have also declined but slowly, with homes continuing to move off the market—an average of 19 days, compared to a low point of 14 days reached mostly recently this summer. First-time homebuyers made up 29% of the market, the same as the previous month. Sales continue to fall across price points, with the drop hitting lower-priced homes especially.
“Even if sales are slowing down to a decade low, sales are still moving relatively fast, and the reason is this lack of inventory. Especially fresh new inventory coming onto the market,” Yun said. “When the inventory pops out, there may be two or three offers happening.”
But buyers continue to suffer or get pushed out by mortgage rates, Yun emphasized. Someone who could afford the monthly payment on a $300,000 mortgage at 3% can only afford a $190,000 mortgage today, he said.
“Buyers who remain in the market face much higher borrowing costs, which limits their options,” said Sturtevant. “Repeat buyers who have equity to roll into the home purchase are in a much better position than first-time buyers who are facing not only higher prices and rising mortgage rates, but also challenges saving for a down payment.”
Experts have emphasized that every market and region will experience the ongoing downturn (or a potential crash) differently, with a handful of fundamental factors dictating the fate of a given market, including inventory.
To that point, the West has defied the trend in falling sales, staying flat after a slight increase last month—still down 31.3% from last year, but apparently hitting a floor. Yun also provided some data from areas hit by Hurricane Ian in Florida, with sales down 40% year-over-year in the Fort Myers region after the hurricane, compared to 18% before the storm.
Across the country, existing-home sales in the Northeast dropped 1.6% from August, retreating 18.7% from September 2021. The Midwest slid 1.7% from the previous month, falling 19.7% from September 2021. In the South, existing-home sales pulled back 1.9% in September, a decline of 23.8% from this time last year.
