- Existing-home sales dropped by 1% last month, reaching their lowest level since October 2010.
- Homebuyers stayed on the sidelines in anticipation of lower mortgage rates.
- But 30-year fixed mortgage rates have actually increased since the Fed’s rate cut in September.
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US existing-home sales dropped to a nearly 14-year low in September as prospective homebuyers held back in anticipation of lower mortgage rates.
Last month’s sales dropped by 1%, to an annual rate of 3.84 million, the National Association of Realtors said on Wednesday. That marked the lowest level since October 2010 and came in below economists’ estimates of 3.88 million.
The decline suggests buyers have opted to wait for borrowing costs to descend, as typically happens when the Federal Reserve eases interest rates.
It was widely assumed that US bond yields — and mortgage rates, which are correlated with them — would fall after the Fed cut rates on September 18. But both are up sharply.
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According to Mortgage News Daily, the average 30-year fixed mortgage rate has climbed by 70 basis points since then, to 6.85% from 6.15%.
Stronger-than-expected economic data has forced investors to adjust their outlooks for how much the Fed will cut rates. Since monetary easing generally leads to lower yields, the prospect that the Fed will pump the brakes on further cuts is pushing yields higher.
If this trend continues, those prospective homebuyers holding out for lower mortgage rates will be waiting a while.
Elevated mortgage rates have been among several factors squeezing housing affordability. The high-rate environment has meant fewer sellers, draining home inventory and keeping prices high.
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Redfin said in a report on Tuesday that home prices grew by 0.5% month over month in September, marking the fastest pace since April.
“There are around 20% fewer homes on the market today than there were five years ago, mainly because so many homeowners locked in a low mortgage rate during the pandemic,” Sheharyar Bokhari, a senior economist at Redfin, said in the report. “With mortgage rates back above 6.5% this month — and unlikely to drop below 6% this year —home prices will likely continue their consistent climb until more inventory comes onto the market in the spring.”