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  • U.S. home sales fell in September to the lowest level since the Great Recession

    U.S. home sales fell in September to the lowest level since the Great Recession

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    The numbers: Home sales in September fell to the lowest level since 2010, as high mortgage rates continue to hammer the housing market.

    Aside from low inventory, rising rates are eroding buyers’ purchasing power, and drying up demand. Sales of previously owned homes fell by 2% to an annual rate of 3.96 million in September, the National Association of Realtors said Thursday.

    That’s the number of homes that would be sold over an entire year if sales took place at the same rate every month as they did in September. The numbers are seasonally adjusted.

    The drop in sales was slightly better than what Wall Street was expecting. They forecasted existing-home sales to total 3.9 million in September.

    Compared to September 2022, home sales are down by 15.4%. 

    Key details: The median price for an existing home in September rose for the third month in a row to $394,300. Prices are up 2.8% from a year ago. That was the highest price for the month of September since NAR began tracking the data.

    Home prices peaked in June 2022, when the median price of a resale home hit $413,800.

    Around 26% of properties are being sold above list price, the NAR noted.

    The total number of homes for sale in September fell by 8.1% from last year, to 1.13 million units. Housing inventory for the month of September was the lowest since 1999, when the NAR began tracking the data.

    Homes listed for sale remained on the market for 21 days on average, up from the previous month. Last September, homes were only on the market for 19 days.

    Sales of existing homes rose only in the Northeast in September, as compared with the previous month, by 4.2%. The median price of a home in the region was $439,900. 

    All-cash buyers made up 29% of sales, highest since January 2023. The share of individual investors or second-home buyers was 18%. About 27% of homes were sold to first-time home buyers.

    Big picture: The U.S. housing market is in the midst of a serious slowdown that is primarily driven by high mortgage rates. High rates spook home buyers, drying up demand, and high rates also deter homeowners from selling since they may have to purchase another home. For a homeowner with a 3% mortgage rate for the next few decades, there’s little incentive to move.  

    And the residential sector is likely to see sales fall further in October’s data, as the 30-year mortgage inches even higher. Demand for mortgages has collapsed, and some outlets like Mortgage News Daily are quoting a rate of 8% for the 30-year.

    Existing-home sales in 2023 could fall to the slowest pace since the housing bubble burst in 2008, real-estate brokerage Redfin said on Thursday, at a 4.1 million pace. 

    What the realtors said: “Mortgage rates and limited inventory has been the story throughout this year — no different this month, other than the fact that interest rates are moving higher,” said Lawrence Yun, chief economist at the National Association of Realtors. 

    “The Federal Reserve simply cannot keep raising interest rates in light of softening inflation and weakening job gains,” he added. “We don’t want the Fed to overdo it and cause great harm to real estate.” 

    Yun also questioned whether there will be a “fundamental change” or a temporary one to the “American way of life” due to the slowdown in sales.

    Market reaction: Stocks were down in early trading on Thursday. The yield on the 10-year note
    BX:TMUBMUSD10Y
    rose above 4.9%.

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  • Mortgage rates could hit 8%, economists say, citing a worrying sign not seen since the Great Recession

    Mortgage rates could hit 8%, economists say, citing a worrying sign not seen since the Great Recession

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    With mortgage rates firmly above 7%, homeownership has become much more expensive. But will rates go even higher?

    Three experts told MarketWatch that if the economy continues to show signs of strength, and the U.S. Federal Reserve hikes its benchmark interest rate once again, rates could go up to 8%. 

    High rates have already taken a toll on the U.S. housing market. Even home builders, who have in recent months experienced strong demand from homebuyers, are reporting a drop in buyer traffic as those rising rates rattle their customers. 

    But experts also stressed that the U.S. economy is showing early signs of cooling, and that the rate of inflation is easing. That could lead to a slowdown — or even a drop — in mortgage rates. But such forecasts are not a guarantee, as Tuesday’s stronger-than-expected U.S. retail sales figures suggested.

    How high can rates go? 

    Even though the 30-year fixed mortgage rate was averaging 7.26% as of Tuesday evening, the highest level since November 2022, economists say rates could go up further.

    The 30-year is “at a critical stage,” Lawrence Yun, chief economist at the National Association of Realtors, told MarketWatch.

    “If the 30-year-fixed mortgage rate can hold at a high mark of 7.2% — and the 10-year yield holds at 4.2% — then this would be the high for mortgage rates before retreating,” Yun said. “If it breaks this line and easily goes above 7.2%, then the mortgage rate reaches 8%.”

    As of Tuesday afternoon, the 10-year Treasury note
    BX:TMUBMUSD10Y
    was above 4.2%.

    “Mortgage rates could rise significantly if global investors demand higher yields for fixed-income assets,” Cris deRitis, deputy chief economist at Moody’s Analytics, told MarketWatch.

    Currently, the spread between the 30-year fixed-rate mortgage and a 10-year Treasury bond is around 300 basis points, which is “elevated and highly unusual,” he said.

    “‘Historically, the mortgage-rate spread has only been around this level only during periods of financial crisis such as the Great Recession or the early 1980s recession.’”


    — Cris deRitis, deputy chief economist at Moody’s Analytics

    “Historically, the mortgage-rate spread has only been around this level only during periods of financial crisis such as the Great Recession or the early 1980s recession,” deRitis added. “The historical average is closer to 175 basis points.” 

    If the 10-year continues to rise — and the U.S. Federal Reserve chooses to interest rates once again — it could go beyond 5%. If the spread stays elevated at 300 basis points, deRitis added, “a mortgage rate of 8% or more is a distinct possibility in the near term.”

    Consumers seem to be prepared for 8% rates. In February, households surveyed by the New York Federal Reserve as part of its Survey of Consumer Expectations, found that they expect mortgage rates to rise to 8.4% by the following year, and 8.8% in three years’ time. Yet few saw the moment as an opportunity to buy.

    To be clear, rates have been far higher in the past. In 1981, the 30-year mortgage rate went up to 18%, according to Freddie Mac
    FMCC,
    +31.97%    .
    That year, the rate of inflation was 10.3%, according to the Minneapolis Fed. 

    “So in theory, mortgage rates can go up as much,” Selma Hepp, chief economist at CoreLogic, told MarketWatch. “But I don’t think they’re gonna go much beyond where they are right now.”

    The yearly rate of inflation in July was just 3.2%. There was runaway inflation in the early 1980s. Though the year isn’t over yet, it is highly unlikely that the rate will suddenly surge, as economists expect the cost of housing — one of the biggest drivers of inflation — to ease in the coming months.

    What happens to housing if rates surge?

    If the 30-year mortgage interest rate reached 8%, there would be serious consequences for the housing market, Yun said. “At 8%, the housing market will re-freeze, with fewer buyers and far fewer sellers,” he added. 

    But don’t expect high rates to hurt home prices just yet, Yun added: “As long as the job market doesn’t turn negative, then home prices will be stable — though home sales will take another step downward. If there is a job-cutting recession, then home prices will fall as some will be forced to sell while there are few buyers.”

    Other experts said that high rates have already taken a toll on the U.S. housing sector. “A mortgage rate in excess of 6% has already sidelined a large number of potential homebuyers, especially first-time home buyers,” deRitis said. 

    He noted that the monthly mortgage payment for a median-priced home at the prevailing 30-year mortgage rate has risen from close to $1,100 per month in January 2019 to over $2,100 today.  “At 8%, the monthly payment would rise to over $2,300, excluding an even larger number of potential buyers with above-average incomes,” deRitis added.

    High rates also discourage homeowners from selling, since they may have to surrender an ultra-low mortgage with a low monthly payment for a high rate. They may end up with a smaller budget to purchase a home, or worse, not find any listings at all, given an ongoing inventory crunch. 

    With high rates, many home buyers may be priced out of the market. Yet some buyers — particularly baby boomers — who have the means to put in all-cash offers on homes are keeping home prices elevated, Hepp said. 

    So who would be able to buy and sell? Cash buyers. “They tend to be older people like baby boomers who own their homes free and clear,” she added. “If they live in more expensive areas, like anywhere in California, they can sell their home and walk away with in excess of $500,000. And that in some markets buys them two homes.”

    deRitis said that the ultimate fate of home prices falls on the strength of the job market. Even though rates are high for now, home prices may not fall significantly, as some buyers can still purchase homes with cash, he added.

    But “if the labor market should weaken and unemployment rise, home foreclosures would rise,” deRitis added, “placing downward pressure on home prices.”

    “So the housing market is definitely suffering from high rates,” Hepp said. “But I think even higher rates would be pretty devastating for the housing market.” 

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  • ‘The housing recession is over,’ real-estate group says, as pending home sales tick up for the first time in 4 months

    ‘The housing recession is over,’ real-estate group says, as pending home sales tick up for the first time in 4 months

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    The numbers: Home sales inched up for the first time in four months, even as the U.S. housing market continues to deal with a dearth of listings. 

    Pending home sales rose by 0.3% in June from the previous month, according to the monthly index released Thursday by the National Association of Realtors.

    The figure exceeded expectations on Wall Street. Economists were expecting pending home sales to fall 0.5% in June.

    Transactions were still down 15.6% from last year.

    Pending home sales reflect transactions where a contract has been signed for the sale of an existing home but the sale has not yet closed. Economists view it as an indicator of the direction of existing-home sales in subsequent months.

    Big picture: Home sales rose as the housing market contends with excess buyer demand and a shortfall in the supply of homes for sale. 

    Real-estate agents are looking to home builders to fill the gap as rate-locked homeowners hold out on selling. New-home sales surged in May, and while they lost some momentum in June, the broader trend is still upward.

    The prices of new homes, which are generally seen as more expensive, are also coming down. The gulf between the median price of a new home and of an existing home narrowed in June, based on data from the NAR and the federal government. 

    What the real-estate experts said: “The recovery has not taken place, but the housing recession is over,” NAR chief economist Lawrence Yun said. “The presence of multiple offers implies that housing demand is not being satisfied due to lack of supply.” 

    The NAR also said it expects rates for 30-year mortgages to average 6.4% this year and to fall to 6% in 2024. 

    The NAR also expects existing-home sales to fall 12.9% in 2023 from the previous year, to 4.38 million, before recovering in 2024 to a rate of 5.06 million.

    The group also expects home prices to hold steady this year, falling only slightly by 0.4% to $384,900, before rising 2.6% next year to $395,000.

    “The West — the country’s most expensive region — will see reduced prices, while the more affordable Midwest region is likely to see a small positive increase,” Yun added.

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  • U.S. existing-home sales fall for the eleventh straight month in December

    U.S. existing-home sales fall for the eleventh straight month in December

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    The numbers: U.S. existing-home sales fell 1.5% to a seasonally adjusted annual rate of 4.02 million in December, the National Association of Realtors said Friday.

    This is the 11th straight monthly decline in existing-home sales. The losing streak is the longest since NAR began tracking sales in 1999.

    Economists polled by the Wall Street Journal were expecting existing-home sales to drop to 3.95 million.

    The level of sales activity was lowest since November 2010, in the midst of the foreclosure crisis in America.

    Compared with December 2021, home sales were down 34%.

    Total sales of existing homes in 2022 were down 17.8% from the previous year. Last year, 5.03 million existing homes were sold, which is the lowest level since 2014.

    The last time existing home sales dropped by this magnitude was in 2008.

    Key details: The median price for an existing home fell to $366,900 in December, from $370,700 in November.

    The number of homes on the market fell 13.4% to 970,000 units in December. 

    Expressed in terms of the months-supply metric, there was a 2.9-month supply of homes for sale in December, down from the previous month. Before the pandemic, a four- or five-month supply was more the norm.

    Homes remained on the market for 26 days on average, up from 24 days in November. Pre-pandemic, the average time for homes to remain on the market was a month. 

    Sales of existing homes mostly fell across the country, led by the South, which saw a 2.2% drop. Sales were unchanged in the West.

    All-cash transactions made up 28% of all transactions. About 31% of homes were sold to first-time home buyers, up from the previous month.

    Big picture: Mortgage rates have moved lower, and many buyers are coming back to the real-estate market. 

    A small dip in rates prompted a 28% surge in mortgage demand earlier this week.

    So with rates continuing to move downwards, sales may likely rebound in the next few months, breaking an 11-month losing streak.

    But the market still has to figure out inventory, since there are so few homes for sale on the market.

    What the realtors said: “We really need to begin to address this supply issue,” Lawrence Yun, chief economist at the National Association of Realtors said.

    Yun said that overall, homeowners have enjoyed more in home price appreciation versus their 401k performance in the stock market.

    What are they saying? Even though sales dropped considerably, “this result was somewhat better than expected,” Stephen Stanley, chief economist at Amherst Pierpont, wrote in a note.

    And as rates move lower, that will “help to boost demand for homes generally,” Stanley added, “but it will also lessen the impact of homeowners being ‘trapped’ in their current locations.”

    Market reaction: Stocks were up in early trading on Friday. The yield on the 10-year note
    TMUBMUSD10Y,
    3.479%
    rose above 3.45%.

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