Existing Home Sales Log First Year-Over-Year Increase in More Than 3 Years

A 'For Sale' sign displayed in front of a home in Miami, Fla., on Feb. 22, 2023. Joe Raedle/Getty Images

It’s been a mixed bag for the U.S. housing market, as positive numbers showing an increase in home sales in October were quickly followed by a rise in mortgage rates and diminishing demand.

A short-lived drop in mortgage rates in September led to a 3.4 percent increase in home sales, to 3.96 million in October, according to the monthly report released by the National Association of Realtors (NAR) on Nov. 21. Year over year, the sales rose by 2.9 percent, the first since July 2021.

Existing home sales rose in all four major U.S. regions, including single-family homes, townhomes, condominiums, and co-ops. The count is based on signed contracts, meaning most of the deals were made in August and September when the average rate on the more popular 30-year fixed mortgage had fallen to a low of 5.89 percent.

The total housing inventory in October was 1.37 million units, up 0.7 percent from September and a whopping 19.1 percent from a year ago (1.15 million). Unsold inventory is currently at a 4.2-month supply, down slightly from 4.3 months in September.

Meanwhile, homes continue to increase in value, with the median existing-home price for all housing types in October rising 4 percent from a year ago, to $407,200.

NAR chief economist Lawrence Yun said in a press release that he hoped the housing market had finally turned the corner.

“The worst of the downturn in home sales could be over, with increasing inventory leading to more transactions,” he said.

“Additional job gains and continued economic growth appear assured, resulting in growing housing demand. However, for most first-time homebuyers, mortgage financing is critically important. While mortgage rates remain elevated, they are expected to stabilize.”

Climbing Mortgage Rates Dampen Buyer Enthusiasm

However, fluctuating mortgage interest rates could disrupt the prospects of a home recovery.

Federal housing finance agency Freddie Mac’s Primary Mortgage Market Survey, released on Nov. 14, showed that the average rate on a 30-year fixed mortgage dropped slightly, to 6.78 percent from 6.79 percent the previous week, ending a six-week streak of consecutive increases.

However, the pause was short-lived. On Nov. 21, the agency reported a 6 basis-point jump in the mortgage rate, to 6.84 percent.

“Heading into the holidays, purchase demand remains in the doldrums. While for-sale inventory is increasing modestly, the elevated interest-rate environment has caused new construction to soften,” it said in a press release.

According to a new survey from online real estate company Zillow, the rising interest rates have already put many would-be buyers and sellers on the sidelines waiting to see if rates fall.

Zillow reported that nearly 80 percent of mortgage holders currently have a rate below 5 percent.

In addition, Freddie Mac reported on Nov. 7 that home-purchase applications declined by 10 percent in October. The agency’s chief economist, Sam Khater, said in the press release that “it is clear purchase demand is very sensitive to mortgage rates in the current market environment.”

Federal Reserve’s Effect on Mortgage Rates

While the Federal Reserve’s decisions to cut or raise the prime borrowing rate don’t directly correlate with changes in mortgage interest rates, when the Fed decided earlier this month to cut interest rates by a quarter-point, following a half-point cut in September, there were expectations that the prime mortgage rate would also decrease for borrowers. That did not happen.

Earlier this month at the NAR’s NXT, The REALTOR® Experience in Boston, Massachusetts, Yun addressed the tenuous relationship between what the Fed does and the reaction of the mortgage banking industry.

“Mortgage rates will not decline in tandem” with the Fed’s rate cut, he said, blaming the national budget deficit as the reason.

“With a large budget deficit, there’s less mortgage money available. The government is borrowing so much of its money. A large budget deficit will prevent mortgage rates from dropping to 4 percent” as they did during President-elect Donald Trump’s first term, Yun said.

He said that factors potentially changing his forecast could include reducing the budget deficit, easing housing regulations holding up homebuilders, or a significant increase in the labor force to help lower inflationary pressures.

In those cases, “mortgage rates could come down quickly,” Yun said.