US existing home sales fell for the eighth straight month in September and are likely to fall further in the coming months as the housing market continues to stand out as the sector of the economy hardest hit by the US Federal Reserve’s aggressive rate hikes.
Thursday’s broadly weak National Association of Realtors report contrasted with another strong US job market reading, with the Labor Department last week reporting an unexpected drop in the number of first-time jobless applicants.
The two reports illustrate the uneven impact so far of the fastest series of Fed rate hikes in at least four decades.
The rate-sensitive housing market, which has rallied during the pandemic due to then-low borrowing costs and demand for more housing during COVID-19 restrictions, has been hit by the hikes across the board as interest rates on the most popular form of home loan soared almost 7 percent rise – the highest in 20 years. But other areas of activity, from jobs to consumer spending, have had little impact so far, suggesting the Fed may still have to do something to reduce aggregate demand, which is adding to price pressures.
The Federal Reserve raised its benchmark overnight interest rate from near zero to the current range of 3.00 percent to 3.25 percent in March, and that rate is expected to end the year in the mid-4 percent range, based on data Fed officials provide forecasts and breaking comments.
seller’s market no more
Existing home sales fell 1.5 percent last month to a seasonally adjusted annualized rate of 4.71 million units, the NAR said. Barring the short-lived slump in spring 2020 when the economy reeled from the first wave of COVID-19, this was the lowest level of sales since September 2012.
Economists polled by Reuters had forecast sales to fall to 4.70 million units. At a regional level, sales fell in the Northeast, Midwest and South and were flat in the West.
Home resale, which accounts for the majority of U.S. home sales, fell 23.8 percent year over year.
Data this week showed that homebuilder confidence eroded for the 10th straight month in October, and groundbreaking for new single-family home projects fell to its lowest level in more than two years in September.
Mortgage rates, which have moved in tandem with US Treasury yields, have risen even higher. The 30-year fixed-rate mortgage rate last week averaged 6.94 percent, the highest in 20 years, up from 6.92 percent the previous week, according to data from mortgage financing agency Freddie Mac.
NAR chief economist Lawrence Yun said the September sales figures do not reflect the recent rise in mortgage rates, which rose about a percentage point in a month. As a result, he expects the rate of sales to drop further in the coming months, perhaps as high as 4.5 million per year, which would be about 4 to 5 percent below the current pace of sales.
Although property price growth has slowed due to weaker demand, tight supply is keeping prices high. The average price of existing homes in September rose 8.4 percent year-on-year to $384,800. There were 1.25 million homes on the market, down 0.8 percent from a year ago.
“The details of the report suggest that real estate is no longer a seller’s market,” wrote Aneta Markowska, chief finance economist at Jefferies. “Up until this summer, house prices have continued to rise despite falling demand; probably because supply was also muted. However, the balance of power is finally shifting from sellers to buyers.”
Labor market remains strong
Meanwhile, few signs have emerged so far that the labor market is loosening significantly or that employers are going into downsizing mode.
Initial jobless claims fell unexpectedly by 12,000 to a seasonally adjusted 214,000 for the week ended October 15, the Labor Department said. Data for the previous week has been revised to show 2,000 fewer claims than previously reported. Economists polled by Reuters had forecast 230,000 applications last week.
The government reported earlier this month that job vacancies fell by 1.1 million, the biggest drop since April 2020, to 10.1 million on the last day of August. However, economists do not expect widespread layoffs as companies have been wary of laying off their workers after difficulties hiring last year as the pandemic forced some people out of the labor market, partly due to prolonged illnesses caused by the virus.
The claims report showed the number of people receiving benefits after an initial week of aid, a stand-in for recruitment, rose by 21,000 to 1.385 million in the week ended October 8. So-called rolling claims have not moved significantly from this level for about six months and remain 400,000-500,000 below pre-pandemic levels.
“Even as the economy slows, employers seem reluctant to lay off workers they are struggling to hire and retain,” wrote Nancy Vanden Houten, senior US economist at Oxford Economics, in a note to clients. “We don’t expect claims to fall much below current levels, but we also don’t expect claims or unemployment to rise significantly until we enter a recession in 2023.”