Sales of previously owned homes unexpectedly inched up in November, halting a five-month slump and ending a 13-year low. However, one industry economist advises caution before labeling it a rebound.
Increase in Sales
According to the National Association of Realtors, existing homes in November were sold at a seasonally adjusted annual rate of 3.82 million, representing a 0.8% increase from the previous month.
This uptick comes as a surprise, as economists had predicted a slight decline in sales to a seasonally adjusted annual rate of 3.78 million. October’s sales pace was the lowest since August 2010, marking five consecutive months of decline.
Impact of Mortgage Rates
Mortgage rates that rose during the summer and fall period contributed to higher financing costs for home purchases, resulting in a cooling effect on deal activity. The increased rates made purchasing a home more expensive for buyers, thereby reducing demand.
Optimism Amidst Weakness
Lawrence Yun, the chief economist of the National Association of Realtors, acknowledges that the recent weakness in existing home sales can be attributed to the buyer bidding process in October when mortgage rates reached a two-decade high. However, Yun also highlights that lower mortgage rates in recent weeks could lead to a marked turnaround in sales activity.
While November’s gain may not be considered a significant increase, the drop in mortgage rates offers hope for improved sales figures in the future.
Home Financing Costs Decrease, Mortgage Rates Drop
Sales in November were hindered by higher rates, but since then, home financing costs have significantly decreased. According to Freddie Mac’s weekly survey, the average 30-year fixed mortgage rate was 6.95% last week, dropping 0.84 percentage points from its peak in October. The latest survey, expected to be released tomorrow, is anticipated to show further decreases: Mortgage News Daily’s survey on Tuesday reported an average 30-year fixed rate of 6.64%.
Mortgage application data from the Mortgage Bankers Association also indicates a positive trend as mortgage rates have fallen. However, despite the recent rate drop during a traditionally slow housing season, the impact on volume has been minimal. The trade group reported a 1% decline in its seasonally-adjusted index for home purchase applications compared to the previous week. According to Mike Fratantoni, the trade group’s chief economist, borrowers’ response to this rate decrease was relatively lukewarm.
Experts suggest that it will take some time for home sales to see significant improvement due to the lag between buyers’ response to lower mortgage rates, entering into contracts, and closing on homes. Lawrence Yun, an industry insider, predicts that it may take at least two or three months before any meaningful recovery is observed.
Despite closed deals remaining at relatively low levels, there has been an increase in prices. According to the trade group, the median home sold for $387,600 in November, experiencing a 4% rise compared to the previous year.
There is potential for further price appreciation with one condition. Yun emphasizes that only if there is a substantial increase in housing supply will it dampen price appreciation. In November, there were 1.13 million units available on the market, representing a 1.7% decline from the previous month but a 0.9% growth compared to November 2022.