US home sales and new listings fell to new lows in September – and a prominent real estate company is warning the market “will deteriorate” as mortgage rates are set to rise in the coming months.
The number of homes sold in September fell 25% year over year to 478,593 — the lowest on record excluding the turmoil of the COVID-19 pandemic, according to data released by Redfin on Wednesday. The number of new apartments offered fell by 22% year-on-year to 503,156.
The big slump is largely due to a sustained rise in mortgage rates, which approached 7% this week and are expected to rise further if the Federal Reserve implements more rate hikes. Higher mortgage rates have hurt affordability and pushed many buyers out of the market.
“The housing market will deteriorate before it gets better,” Chen Zhao, Redfin’s head of economic research, said in a statement. “With inflation still rampant, the Federal Reserve is likely to continue raising interest rates. That means high mortgage rates — the main killer of housing demand — may not come down until early to mid-2023.”
According to Freddie Mac, the average 30-year fixed-rate mortgage was 6.92% last week. The average rate has more than doubled since January.
The average monthly mortgage payment at current long-term interest rates is more than 50% higher than at the same point last year. The affordability crisis is also affecting potential sellers, who would rather not have to buy a new home at a higher mortgage rate, according to Redfin.
Overall, the housing market is in “another standstill” on a similar scale to the slump in the early days of the COVID-19 pandemic – but for very different reasons.
“This time demand is collapsing due to rising mortgage rates, but prices are being supported by inflation and a drop in the number of people listing their homes for sale,” Zhao said. “Many Americans are staying put because they’ve already moved during the pandemic and gotten a rock-bottom mortgage rate, leaving them with little incentive to move today.”
Home prices fall as sellers try to lure suspicious buyers into action. The median selling price tracked by Redfin fell 0.5% in September to $403,797, although prices are still up 8% year over year.
Fed officials, including Chair Jerome Powell, have acknowledged signs of weakness in the housing market as they ramp up their efforts to tighten monetary policy.
More troubling data points emerged this week, with builder confidence in the 10thth month in a row, hitting its lowest level since 2012. Prominent economist Ian Shepherdson of Pantheon Macroeconomics described the result as “catastrophic”.
Housing starts fell 8.1% in September, with single-family home breaks falling to a two-year low.
