The National Association of Realtors reported that home sales dipped 7.7% in November. Analysts expected house sales to reach around 4.17 million units sold. However, in November, sellers sold only 4.09 million units.
November marked the 10th straight month that sales tumbled. Moreover, it also keeps a 35.4% year-over-year dip in house sales. Over the past decades, the weakest paces in sales happened in November 2010. Another dramatic fall in house sales occurred in May 2020 following the pandemic. But according to the group, the low number of house sales comprised the closings signed in September and October. Higher mortgage rates characterized these months. So houses sold in November could be higher.
“In essence, the residential real estate market was frozen in November, resembling the sales activity seen during the Covid-19 economic lockdowns in 2020,” NAR chief economist Lawrence Yun said.
“The principal factor was the rapid increase in mortgage rates, which hurt housing affordability and reduced incentives for homeowners to list their homes. Plus, available housing inventory remains near historic lows,” he added.
Meanwhile, house supply in the market was up by 2.7% from last year at 1.14 million homes for sale. However, the current pace of house sales needs to reach the ideal pace analysts expect. In addition, consumer behavior is likely affected by the higher prices of houses in the market. As mortgage rates go up and down and materials in the market get affected by inflation, homebuyers struggle to select a house that fits their budget.
“We have seen home prices come down from their summer peaks over the past five months. But, at the same time, we have also seen rent growth retreat for ten consecutive months,” added George Ratiu from Realtor.com.
“However, the cost of real estate remains challenging for many households looking for a place to call home, especially as high inflation and still-elevated interest rates have been eroding purchasing power,” he added.
Mortgage rates fluctuating
Fortunately, mortgage rates have been falling recently, prompting investors and buyers to consider purchasing homes. However, compared to years ago, the prices are still relatively higher. Recently, mortgage rates fell, leading to a small spike in buyers applying for mortgage applications.
“The ongoing moderation in home-price growth, along with further declines in mortgage rates, may encourage more buyers to return to the market in the coming months,” said MBA economist Joel Kan.
“A friendly enough Fed could easily break the range, but we have doubts about how much fuel the Fed will want to add to the fire. If anything, the Fed is more likely to try to temper the exuberance. Because the exuberance is counterproductive to the Fed’s goals,” added Matthew Graham, Mortgage Daily News chief operating officer.
“The second consecutive month of reassuring CPI data continues to build a case that inflation has turned a corner, but rates will be careful about reading too much into that potential shift given the volatility of the data in recent months,” said Graham.
“The bond market will also want to see what the Fed does with this info in tomorrow’s updated Fed rate forecasts in the dot plot,” he added.
“There are some very, very modest green shoots over the last few weeks, as rates have come down, but I am not ready to get sucked back into the conversation we had in August when we felt better,” said the CEO of Toll Brothers, Doug Yearley.
“There have been a handful of relatively good news for the housing market lately, but we’re far from out of the woods. Key indicators of homebuying demand will likely be teetering on a knife’s edge with every data release that comes out related to the Fed’s path to eventually bringing rates down,” added economist Taylor Marr from Redfin.
Read Also: Mortgage Rates Decline Stirring up Demand
House sales still far
However, experts contend that while the mood is shifting to a more positive side, the conditions still need to be closer to the one that buyers and sellers hope for.
“It’s still extremely unaffordable even with rates coming down and prices coming down in each of the last four months. We’re still less affordable than we were at the peak of the market in 2006, and you see that play out in the rate lock numbers,” explained Andrew Walden from Black Knight.
“As we move throughout 2023, you’re going to see prices continue to soften. You’re going to see incomes hopefully continue to grow and eat up some of that gap. And I think we are going to see rates come down from where they are today, but it’s going to take an extended period to get there,” he added.
In fact, according to the NAR, many first-time buyers are still waiting on the sidelines for a significant drop in prices of houses. Prices are still high, and this affects the purchasing power of the buyers. Until a substantial reduction in house prices happens, many buyers will hold off on buying a property. The answer could be the continued drop in mortgage rates.
“The market may be thawing since mortgage rates have fallen for five straight weeks. “The average monthly mortgage payment is now almost $200 less than it was several weeks ago when interest rates reached their peak for this year,” adds Yun.