US Housing Market ‘Frozen’ As Sales Plunge

Another day, another very poor read on the US housing market.

Sales of previously-owned homes plunged in November, key data released on Wednesday showed.

The disconcerting (albeit wholly predictable) figures came a little over 24 hours after government data suggested demand for single-family homes receded last month amid an acute affordability crisis brought on by aggressive Fed rate hikes and a dearth of supply.

Existing home sales dove almost 8% in November, the NAR said Wednesday. The 7.7% decline was a dubious encore from a 5.9% drop in October, and marked the 10th consecutive monthly decline overall (figure below).

At 4.09 million, the annual pace was nearly as depressed as that witnessed during the onset of the pandemic. The range of guesses, from five-dozen economists, was 4.03 million to 4.5 million.

Figures released on Monday showed builder sentiment fell every month in 2022. Mortgage payments have skyrocketed.

This time last year, existing home sales were running at a 6.33 million seasonally adjusted annual rate. The 12-month drop in sales exceeded 35% last month (figure below).

NAR Chief Economist Lawrence Yun didn’t mince words. “In essence, the residential real estate market was frozen in November, resembling the sales activity seen during the COVID economic lockdowns in 2020,” he said.

Regular readers will note that on November 7, I characterized the housing market as “encased in carbonite, like Han Solo.” Three weeks later, a real estate professor at Wharton used the exact same analogy.

“The principal factor was the rapid increase in mortgage rates, which hurt housing affordability and reduced incentives for homeowners to list their homes,” Yun went on to say Wednesday. “Plus, available housing inventory remains near historic lows.”

That’s the chicken-egg dilemma. Even after falling markedly from the peak, rates are high enough to disincentivize sellers who plan to take on new debt when upgrading. Builders, laboring under sharply higher costs, are unable to offer sufficient incentives to lure buyers, a conjuncture which could further imperil supply if it discourages new construction. Finally, demand is constrained by the same high rates that are disincentivizing sellers and the same high prices that builders are unable to lower without giving up margin.

Inventories slipped 6.6% last month from October, the NAR noted. Months’ supply was unchanged. The annual pace of price gains is now relatively pedestrian, at 3.5%. The median existing home price last month was $370,700, well off the record highs seen over the summer, and down from October’s originally reported $379,100.

It wasn’t all bad news. “The market may be thawing since mortgage rates have fallen for five straight weeks,” Yun ventured. “The average monthly mortgage payment is now almost $200 less than it was several weeks ago when interest rates reached their peak for this year.” Something tells me that’s small comfort for many would-be buyers.