High inflation and rising interest rates are creating one of the worst housing markets since the 2008 crash, presenting another hurdle to President Biden’s hoped-for recovery in a sector that accounts for nearly one-fifth of the economy.
Sales of previously owned homes fell for the ninth straight month in October, down 5.9% from the previous month, the National Association of Realtors said Friday.
Existing home sales were down 28.4% from October 2021, the slowest pace since 2011, with the exception of the start of the pandemic. The streak of declines is the longest on record, forcing buyers and sellers to the sidelines amid higher prices and fewer homes available.
The dramatic slowdown in home sales comes as the Federal Reserve raises interest rates to curb inflation that hit a 41-year high last June. Home mortgage rates on a 30-year fixed loan have more than doubled this year to top 7%, although rates did retreat last week to 6.6%.
Despite the slowdown, home prices kept climbing last month. The national median home price rose 6.6% in October from a year ago, to $379,100. That’s down 8% from its peak in June but still 40% above the level before the pandemic.
“Looking at October of 2019, pre-COVID, and the latest figure, home prices are up a whopping 40%, and that’s really hurting affordability,” said NAR Chief Economist Lawrence Yun. “We know that most families’ incomes, most households’ incomes, have not risen by 40%.”
Megan Rosendale, a real estate agent in Maryland with Rosendale Realty, said the market has cooled but she believes the result is more balance between buyers and sellers.
“There’s less competition — we’re coming off of people seeing 10-plus offers on a house, and now you can actually negotiate a little bit,” she said. “Everybody’s meeting in the middle a little bit, and that’s good for both parties.”
The recent decline in mortgage rates is encouraging, she said.
“It’s going to keep our home prices at a fair price. Hopefully, in the next couple of months, we’re going to see everything taper out and get back to normal.”
But the Fed is expected to continue raising rates.
Inflation remained high last month, and the labor market stayed tight, and consumers kept up a healthy rate of spending, all indicators that the central bank will pump the brakes further on the economy.
The Fed has raised its benchmark interest rate six times this year, with another rate hike expected at its meeting on Dec. 14. Mortgage rates are generally tied to the Fed’s moves.
The housing downturn is another sign of the difficulty Mr. Biden faces in getting the economy back on the right track. At a White House forum Friday with business and labor leaders, the president noted that the economy grew in the third quarter at a rate of 2.6%, an improvement over the first half of the year.
“Our approach, I believe, is working,” the president said. “Inflation at the grocery store is coming down slightly, prices for things like clothes and television and appliances are going down as well as we head into the holidays.”
Mr. Biden predicted “setbacks along the way” before inflation eventually falls to the Fed’s target rate of 2%. “So far we’re in good shape,” he insisted.
Meanwhile, the U.S. leading economic index fell 0.8% in October, the Conference Board reported Friday — the eighth straight decline in the index.
The lengthy decline indicates “the economy is possibly in a recession,” said Ataman Ozyildirim, senior director of economic research at the Conference Board.
He said the data forecasts that a recession will likely start around the end of this year and last through mid-2023.
Source:Washington Times
