Existing home sales, which means the sales of previously owned homes in the U.S. posted the most significant annual decline since October 2014. The drop comes as the housing markets are showing signs of cooling as interest rates inch higher and reducing home affordability.
The latest report was a mixed bag of the housing market which isn’t yet seen free falling. Existing home sales rose 1.4% in October from the month before to a seasonally adjusted 5.22 million, data from the National Association of Realtors showed.
The monthly gain broke a six-month decline in sales. However, when compared to the year before, existing home sales fell 5.1% suggesting that the existing home sales market could end the year on a sluggish note.
Lawrence Yun, the NAHR’s chief economist, attributed the decline to the softness in the housing sector. He expects this to continue in the coming months. In a note, Yun said, “There is some feeling that the market could actually go even lower than what it is now in terms of sales.”
Existing home sales were seen declining since spring this year. This was initially attributed to a shortage of inventory in the market which has been affecting existing home sales over the past few years. However, given the current interest rate environment, the higher mortgage rates are also playing a significant role in impacting the existing home sales market.
The data underlined the fact that demand was slowing and is seen to be also shaking the confidence in the markets that this was not a good time to buy a home.
Echoing views of the U.S. President Trump, the NAHR’s chief economist said that the Fed should consider pausing its interest rates to give the housing markets to firm up.
Economists also cite the recent stock market rout as another reason for creating unease in the housing markets. Buyers are expected to remain cautious as they figure out the uncertainty within the broader economy. The increased anxiety is expected to keep buyers out of the market and put demand in check.
Despite the bleak news, the conditions for buyers are said to be more friendly as mortgage rates, and home price increases are slowing the inventory of existing homes for sales compared to the year before.
According to official data, the current average interest rate for a 30-year mortgage is said to be around 4.81% compared to 4.94% from the week before.
The median price for existing home sales averaged around $255,400.00 which was up 3.8% compared to the year before. This showed a significant decline in costs compared to a 5.5% increase the year back.
Muted price growth and an increase in inventory are however expected to boost the housing market as wages continue to rise.
Another data which measures the purchase of previously owned homes, the new home sales report is expected to be released today. This comes as construction is also seen to be declining. Housing starts fell in October for single family units and housing permits which signals how much construction activity is planned fell 0.6% on a month over month basis.
The Federal Reserve Bank is expected to hold its next monetary policy meeting in December. Interest rates are set to be hiked once again by a quarter point. This would bring the fed funds rate to 2.25% – 2.50%.
The Central Bank also signaled three rate hikes next year. However, uncertainty is starting to creep in as the U.S. economy is showing signs of easing amid weakness in the global economy as well.
Recently, a few Fed officials have cautioned that the Central Bank should look at slowing the pace of rate hikes amid the anticipated slowdown in the economy.
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