Challenging times for homebuyers as inventory continues to dwindle and rates rise
Existing-home sales endured another lackluster month, with total sales falling 4.1% in October, according to the National Association of Realtors.
Existing home sales were down to a seasonally adjusted annual rate of 3.79 million, representing a 14.6% plunge from 4.44 million in October 2022.
NAR chief economist Lawrence Yun highlighted the challenges faced by prospective homebuyers. “Prospective home buyers experienced another difficult month due to the persistent lack of housing inventory and the highest mortgage rates in a generation,” he said.
Limited inventory hinders sales
Yun noted that despite these difficulties, there is still competition for starter and mid-priced homes, while the upper end of the market is seeing price concessions.
NAR’s report showed that the median existing-home price for all housing types in October was $391,800, marking a 3.4% increase from October of the previous year when the median price was $378,800. Price increases were recorded across all four US regions.
“While circumstances for buyers remain tight, home sellers have done well as prices continue to rise year-over-year, including a new all-time high for the month of October,” Yun said. “In fact, a typical homeowner has accumulated more than $100,000 in housing wealth over the past three years.”
At the end of October, the total housing inventory stood at 1.15 million units, showing a slight increase of 1.8% from September but down 5.7% from the previous year’s 1.22 million. The unsold inventory is currently at a 3.6-month supply at the current sales pace, up from 3.4 months in September and 3.3 months in October of the previous year.
“Though limited now, expect housing inventory to improve after this winter and heading into the spring. More inventory will result in more home sales,” Yun said.
“Existing inventory also appears to have bottomed out, and new listings are keeping steady despite the usual seasonal decline,” added CoreLogic chief economist Selma Hepp. “Together, the two may suggest that there really is nowhere to go but up in 2024.”
Impact of the lock-in effect
According to Freddie Mac, mortgage rates averaged 7.44% as of November 16, down from the previous week’s 7.5%.
Holden Lewis, a home and mortgage expert at NerdWallet, commented on the impact of high mortgage rates on home sales.
“Most of October’s home buyers have mortgage rates above 7%, pushing the monthly payments to the limits of affordability,” Lewis observed. “High rates have impeded buyers all year. Less than 3.5 million homes have been sold in the first 10 months of 2023. In comparison, more than 4.5 million homes were sold in the first 10 months of 2019, when mortgage rates spent most of the year under 4.5%.”
Unfortunately, this lock-in effect would likely continue to limit inventory and affect house prices and affordability, according to First American chief economist Mark Fleming.
“Even mortgage rates of 6.4% will not significantly alleviate the market from the rate lock-in effect, as 90% of homeowners are locked into rates below 6%,” he said. “These existing homeowners will still withhold inventory from the market, which will keep upward pressure on house prices and limit affordability. You can’t have more existing-home sales without more existing-home inventory. Even though mortgage rates may decline, it’s unlikely that it will be sufficient to end the sellers’ strike in 2024.”
Fleming also provided an outlook for 2024, predicting a modest improvement in existing-home sales from 2023 levels, but not quite back to historical norms.
“Lower mortgage rates in 2024 will likely not be low enough to end the sellers’ strike entirely, but for those homeowners who do choose to sell, improved affordability for potential buyers means there will be someone to buy it at the right price,” Fleming said.
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