Home sales and new listings in the United States fell to new lows in September – and a leading real estate company warns that the market “will get worse” as mortgage rates rise in the coming months.
According to data published Wednesday by Redfin. The number of new home listings fell 22% from a year ago to 503,156.
The major drop was largely attributable to a continued spike in mortgage rates, which approached 7% this week and are expected to rise as the Federal Reserve implements further interest rate hikes. Rising mortgage rates have reduced affordability and pushed many buyers out of the market.
“The housing market will get worse before it gets better,” Chen Zhao, head of economic research at Redfin, said in a statement. “With inflation still rampant, the Federal Reserve will likely continue to raise interest rates. That means we may not see high mortgage rates – the main killer of housing demand – come down until the start or the middle of 2023.”
The average 30-year fixed rate mortgage was 6.92% last week, according to Freddie Mac. The average rate has more than doubled since January.
The average monthly mortgage payment at current long-term rates is more than 50% higher than at the same time last year. The affordability crisis is also impacting potential sellers who would prefer not to have to buy a new home at a higher mortgage rate, according to Redfin.
Overall, the housing market is in “another shutdown” of a similar magnitude to the crisis that occurred at the start of the COVID-19 pandemic – but for very different reasons.
“This time, demand is collapsing due to soaring mortgage rates, but prices are being supported 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’ve already moved and gotten 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 into action. The median sale price tracked by Redfin fell 0.5% to $403,797 in September, although prices were still up 8% year-over-year.
Fed officials, including Chairman Jerome Powell, have acknowledged that signs of weakness have emerged in the housing market as they continue their policy tightening efforts.
More troubling data points emerged this week, with homebuilder confidence plunging for the 10e consecutive month and hitting its lowest level since 2012. Prominent economist Ian Shepherdson of Pantheon Macroeconomics called the result “disastrous”.
Housing starts fell 8.1% in September, with the number of new groundbreaking single-family homes plunging to a two-year low.