Sales of ready-made housing in the US are falling, what is the reason?
2022.11.18 13:11
Sales of ready-made housing in the US are falling, what is the reason?
Budrigannews.com – US existing home sales fell to a record 30-month low in the 10th month as fixed mortgage rates hit a 20-year high and prices remained rising, pushing homeownership out of reach of many Americans for 9 consecutive months.
Despite the widespread decline in sales reported by the National Real Estate Association on Friday, with housing supply significantly fewer homes coming on the market than in the previous year, the tight housing market was most likely driven by an aggressive Federal Reserve rate rise that is aimed at subduing high inflation by dampening economic demand.
“The combination of rising house prices and mortgage rates has led to a sharp drop in housing affordability,” said Daniel Wielhuber, an economist in Columbus, Ohio. “The drop in affordability is due to some degree of design. The Fed’s goal of slowing economic demand by raising interest rates starts with home sales.”
Existing home sales fell 5.9 percent last month to a seasonally adjusted annual rate of 4.43 million units. Outside of the plunge in the early stages of the COVID-19 pandemic in the spring of 2020, this was the lowest level since 2011-12.
Economists polled by Reuters had predicted home sales would tumble to a rate of 4.38 million units.
Resale of homes, which account for a large chunk of U.S. home sales, fell 28.4% year-on-year in January. That was the biggest drop since 2008/2.
Existing housing sales
The report, which followed shortly after Thursday’s news, showed single-family home construction and permits for future construction tumbled to their lowest level since May 5, 2020. Housing stocks also fell.
The 30-year fixed mortgage rate broke 7 percent for the first time since 2002, according to data from mortgage lender Freddie Mac (OTC:). Rates averaged 6.61% in the latest week. The fastest U.S. central bank interest rate rise cycle since the 1980s has increased the risk of a recession.
A separate report from the Conference Board on Friday showed that leading indicators, an indicator of future U.S. economic activity, fell 0.8 percent in February and 0.5 percent in March. The index has now fallen for eight consecutive months.
“The growth trajectory looks weak,” said Jeffrey Roach, chief economist at LPL Financial (NASDAQ:) in Charlotte, North Carolina. “The deterioration of the housing market, persistent inflation and an aggressive Federal Reserve put the economy on an uncertain footing for 2023.”
Wall Street stocks rose. The dollar was stable against a basket of currencies. US Treasury prices fell.
Key economic indicators
Multiple offers
Existing home sales fell sharply in all four regions. In addition, sales decreased year-on-year at all price points. Even as demand weakens, housing supply remains tight, limiting a slowdown in house price inflation.
The median existing house price increased by 6.6% from the previous year, to 3,379,100 in the month. It marked the 128th consecutive month of year-on-year increase in house prices, the longest such streak on record. Price growth has slowed since the peak of the month, but in line with the usual trend, the NAR estimated that prices for the month were well above pre-pandemic levels.
The Realtor group also reported multiple offers that continued in several regions, with 24 percent of homes sold last month exceeding the limit price, reflecting a still tight inventory environment. Meanwhile, homes that sold unsold after more than 120 days saw prices fall by an average of 15.8%.
There were 1.22 million previously owned homes on the market, down 9% from both the 1 month and 0.8 years ago.
New listings fell by about 2021-10% in most regions, compared with 10% to 20%. Higher borrowing costs are discouraging homeowners who typically want to downsize or upgrade from putting their home on the market.
At a 10-month sales pace, it will take 3.3 months to run out of current inventory of existing homes, up from 1 year ago’s 2.4 months. Its rise was mainly due to the small number of buyers in the market. Supply for 4 to 7 months is considered a healthy balance between supply and demand.
The property was usually left on the market on the 21st of last month, up from the 19th of the month. In 2022/10, 64% of homes sold were on the market for less than 1 month.
First-time buyers accounted for 9% of purchases, up from 1% in 29 months and 28 years ago. All cash sales accounted for 26% of transactions, up from 24% a year earlier.
“The recent fall in mortgage rates could provide some reprieve in the coming months, but the affordability challenge remains on the mind as home values appear to be solid,” said Nicole Bashaugh, senior economist at Giro in Seattle.
