US home sales and new listings fell to fresh lows in September – and one prominent real estate firm is warning the market is “going to get worse” as mortgage rates surge higher in the months ahead.
The number of homes sold in September plunged 25% year-over-year to 478,593 – the lowest on record excluding the upheaval of the COVID-19 pandemic, according to data released Wednesday by Redfin. The number of new home listings fell 22% compared to last year to 503,156.
The major slump is largely attributable to an ongoing spike in mortgage rates, which approached 7% this week and are expected to move higher as the Federal Reserve implements more interest rate hikes. Higher mortgage rates have crushed affordability and pushed many buyers out of the market.
“The housing market is going to get worse before it gets better,” Redfin economics research lead Chen Zhao said in a statement. “With inflation still rampant, the Federal Reserve will likely continue hiking interest rates. That means we may not see high mortgage rates — the primary killer of housing demand — decline until early to mid-2023.”
The average 30-year fixed-rate mortgage was 6.92% as of last week, according to Freddie Mac. The average rate has more than doubled since January.
The average monthly mortgage payment at the current long-term rates is more than 50% higher than it was at the same time last year. The affordability crunch is also impacting prospective sellers who would rather not have to acquire a new home at a higher mortgage rate, according to Redfin.
Overall, the housing market is in “another standstill” similar in magnitude to the slump that occurred in the early days of the COVID-19 pandemic – but for much different reasons.
“This time, demand is slumping due to surging mortgage rates, but prices are being propped up by inflation and a drop in the number of people putting their homes up for sale,” Zhao said. “Many Americans are staying put because they already relocated and scored a rock-bottom mortgage rate during the pandemic, so they have little incentive to move today.”
Home prices are falling as sellers seek to entice wary buyers to act. The median sale price tracked by Redfin fell 0.5% to $403,797 in September, though prices are still up 8% year-over-year.
Fed officials, including Chair Jerome Powell, have acknowledged signs of weakness have appeared in the housing market as they move forward with policy tightening efforts.
Additional troubling data points emerged this week, with homebuilder confidence plunging for the 10th straight month and hitting its lowest level since 2012. Prominent economist Ian Shepherdson of Pantheon Macroeconomics described the result as “disastrous.”
Housing starts dropped 8.1% in September, with the number of new groundbreakings on single-family homes plunging to a two-year low.
Ex-Brit turned Manhattan resident since 2008.