November 18, 2022 | 11:14
Existing Home Sales Getting Spooky
U.S. existing home sales fell for the ninth straight month as conventional mortgage rates remained elevated in October. The decline was slightly better than expected, as sales of existing homes only slid 5.9% to 4.43 million units annualized (consensus was for a 7.3% drop). However, that's still the lowest level of activity since 2011 (excluding the pandemic).
The report was weak across the board, as sales in all regions saw month-over-month and year-over-year declines, ranging from 4.8% m/m in the South, to 9.1% on the West Coast. There was similar weakness across property types as singles fell 6.4% and condos dropped 2.0%. Median prices dropped for the fourth month in a row, and are now more than 8% below their peak earlier this year. Limited housing inventory remains the primary supportive factor in the market. Months supply increased only modestly to 3.3 and is likely to remain contained in the months ahead, as elevated mortgage rates are discouraging households from upgrading and freeing up more inventory. That puts more pressure on new-home construction to expand supply, but that isn't fairing much better against the rising tide of rates—home builder sentiment in November plunged to the lowest level in a decade. We are already seeing cascading effects in related industries, such as wood products manufacturing, which fell by 2.5% in October. Those ripples are likely to turn into even bigger waves as rates continue to rise.
The combination of high prices and elevated rates is pushing many first-time buyers out of the market. Their share of sales fell to 28% in October and according to the National Association of Realtors will average 26% this year—the lowest share ever recorded.
All of this was before the Fed is expected to raise rates by 50 bps at the next FOMC meeting (and a total of 100 bps by early 2023), so expect a chilly November and a cold December ahead for the housing market.