Home sales numbers released on Thursday brought a mix of sobering news: The number of existing homes sold dropped to levels not seen since the aftermath of the Great Recession. However, prices stubbornly remain high, despite facing the highest mortgage rates in 23 years.
In September, the National Association of Realtors reported that existing home sales fell below the psychologically significant annual rate of 4 million homes sold. The median price last month increased to $394,300, marking a 2.8% rise from 2022 but a 3.1% decline from August.
On the same day, Jerome Powell, the Fed Chairman, spoke at the Economic Club of New York Luncheon, expressing that no one should expect interest rate cuts in the near future. He stated, “While the path is likely to be bumpy and take some time, my colleagues and I are united in our commitment to bringing inflation down sustainably to 2%.”
Since 2000, the average annualized home sales figures were around 5.3 million each month. Only eight months, all following the 2007-08 financial crisis, saw lower sales than September. For instance, in July 2010, sales plummeted to a low of 3.45 million.
The number of homes sold has been declining since 2022 when the Fed announced plans to raise interest rates, aiming to control 40-year high inflation. Consequently, mortgage rates have more than doubled, leading to increased monthly payments for new homeowners.
The housing market’s contraction hasn’t affected every region or every price point equally, but all have experienced declines since 2022.
No hike next month? Fed Chair signals the central bank could maintain steady interest rates.
Where the most homes were sold in September
In September, nearly half of the homes sold in the U.S. were in the South. Homes priced between $250,000 and $500,000 accounted for the majority of purchases, but even this category witnessed a 15.5% decline from the previous year. Sales of homes priced between $100,000 and $250,000 saw the most substantial drop, falling by 23.4% compared to September 2022.
Why home sales are continuing to fall
Housing experts have speculated in recent months about a handful of issues that have kept prices high and discouraged potential buyers. These issues include:
- Elevated prices: September’s median sales price of $394,300 ranks among the top 10 months since 2000, and it is the only fall month where prices typically decline.
- Tight inventories: Currently, there is a 3.4-month supply of houses on the market based on the current sales pace. A more balanced market between buyers and sellers would see a 4- to 5-month supply.
- High mortgage rates: Homeowners who took advantage of historically low mortgage rates in recent years are reluctant to take on new mortgages that may have rates more than double their current ones.
Freddie Mac reported on Thursday that the average 30-year mortgage rates now stand at 7.63%, which seemed to discourage some first-time buyers in September, according to the NAR report. Cash sales increased from 22% last year to 29% in September, while first-time buyers, the next largest group, decreased by 2%.
Will interest rates continue to rise?
Powell and other Fed presidents have consistently stated in speeches throughout the week that we should not anticipate interest rate cuts anytime soon. However, according to the CME FedWatch Tool, 98% of investors who bet on interest rate movements expect the Fed to maintain steady rates after its next meeting on November 1.
“Inflation is still too high, and a few months of good data are merely the beginning of what it will take to build confidence that inflation is sustainably moving toward our goal,” Powell stated in his prepared statement on Thursday.
Powell acknowledged that he and other Fed members are walking a tightrope: “Doing too little could allow above-target inflation to become entrenched and eventually necessitate monetary policy to combat persistent inflation at a high cost to employment. Doing too much could also cause unnecessary harm to the economy.”
Contributing: The Associated Press
