Previously owned home sales fell in the US last month. Because why wouldn’t they? Mortgage rates averaged 6.9%.
Somebody will say that’s not especially onerous in a historical context, to which I’d say “That’s correct, but it’s onerous in the context of the last dozen years, and it’s set against near record high prices.”
Also, many first-time buyers don’t remember the historical context, and they’ll be forgiven for any recency bias they might harbor: After all, they weren’t alive for the history we reference when we talk about 8%, 9% and 10% mortgage rates. That’s our context. Their context is the free-money era.
The 4.43 million annual pace of existing home sales last month was actually a bit better than estimates, but it nevertheless counted as the slowest rate since December of 2011 if you don’t count the pandemic months.
It was the ninth straight monthly decline (figure below). That looked like a record, if you’re curious.
The 5.9% drop was the second largest of the nine-month stretch of declines, and among the largest of the pandemic era.
“More potential homebuyers were squeezed out from qualifying for a mortgage in October as mortgage rates climbed higher,” NAR Chief Economist Lawrence Yun sighed. “The impact is greater in expensive areas of the country and in markets that witnessed significant home price gains in recent years.”
From a year ago, sales fell more than 28%. The figures came at the end of a week which featured a mixed read on starts and permits, as well as an eleventh consecutive drop in a key measure of homebuilder sentiment.
A quarter of existing homes purchased last month fetched above-asking. At the same time, though, homes which were on the market for more than four months saw prices cut by almost 16%. The annual rate of price appreciation was 6.6%, nowhere near the torrid pace seen on key national gauges earlier this year, at the top of the market. Prices did rise in every region. All cash sales accounted for 26% of purchases.
Inventories were obviously still constrained last month, which is contributing to price buoyancy. Total inventory fell both from the prior month and from October of last year. The slower sales pace means it’d last longer, though. Months’ supply moved higher, and now sits almost one full month above the 2.4 level seen in autumn of 2021.
At $379,100, the median price still seems high. I continue to question a conjuncture in which average families are expected to conjure $80,000 to buy a “regular” single-family home. That’s not so much a comment on what homes are or aren’t worth as much as it is an attempt to (again) convey my incredulity at the notion that prototypical newlyweds (for example) have $80,000 in totally unencumbered cash sitting around just ready to be spent. I’ll qualify that statement too. $80,000 isn’t a lot of money in itself, and if it’s just you, with very little monthly “life overhead” (so to speak) and you’re gainfully employed, then sure, ok, wire $80,000 and buy a house. That was essentially my situation once upon a time, albeit with different numbers. But it’s hardly that simple for the vast majority of first-time buyers, most of whom have considerable monthly expenses, less-than-perfect credit, other debt burdens and, of course, children. If we want homeownership to be affordable for real people (where that means families with normal jobs), a more reasonable starting point is a $50,000 down payment and a 5% mortgage.
Earlier this month, the NAR released its 2022 Profile of Home Buyers and Sellers. Among the highlights: First-time buyers accounted for just 26% of purchases this year. That was down dramatically from 2021, and counted as the lowest share in the history of NAR’s data. The average first-time buyer was 36 years old, a record high.
Oh, and incidentally, have a look at this listing. Seems perfect for an island exile looking for new scenery.