Last month, existing home sales increased for the first time since May as mortgage rates began to moderate.
Home sales in November rose 0.8% to a seasonally adjusted annual rate of 3.82 million, the National Association of Realtors reported on Wednesday. Mortgage rates are still pricing out many would-be buyers and leading to people avoiding selling, although with rates recently trending down, more people entered the market last month.
The pace of home sales is still down 7.3% from the year before.
Total housing inventory at the end of November was 1.13 million units, down 1.7% from October but up 0.9% from a year ago.
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The median price of an existing home in November was $387,600, an increase of 4% from the year before. Additionally, homes typically remained on the market for 25 days in November, up from 23 days in October.
The Federal Reserve’s quest to vanquish inflation by hiking interest rates has roiled the housing market, as it has translated into dramatically higher mortgage rates.
The Fed’s barrage of rate hikes came after an extended period of interest rates being near-zero due to the pandemic. The resulting dynamic saw mortgage rates move from historic lows — spurring an explosive housing market — to the highest level they have been in two decades — slamming into the housing market.
During the pandemic people were able to buy homes with ultra-low sub-3% mortgages. Now, mortgage rates are 7% and 8% so a lot of those people who purchased homes are now refusing to sell because they don’t want to lose their prime mortgages.
Furthermore, people who might want to buy a home for the first time are waiting until mortgage rates come down before entering the market, resulting in few sales of existing homes.
The increase in new home sales might be, at least in part, a result of mortgage rates falling last month. Given meaningful declines in inflation, it now appears likely that the Fed will pivot and begin cutting its interest rate target in the coming months, with investors expecting the first cut to come as soon as March.
Mortgage rates have fallen since the start of November in anticipation. After peaking at over 8% in October, the average rate on a 30-year, fixed-rate mortgage was 6.64%, according to Mortgage News Daily, which tracks daily changes in rates.
That is a notable decline of more than 1.6 percentage points, a drop that might have been enough to convince some homeowners to put their existing home on the market and some homebuyers to finally pull the trigger and purchase a house.
Also of note to those watching the housing market, there is also a bit of an imbalance between new homes and existing homes. Because so many people are holding onto their pandemic-era home purchases, existing home inventory has been low, driving up demand for new homes.
In fact, new home sales in October were 17.7% higher than the year before.
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To meet demand, construction of housing has continued despite the high mortgage rate environment.
Housing starts, the change in the number of new residential buildings that began construction, rose 14.8% from October to this past month, according to a Tuesday report from the Census Bureau. From November 2022, they increased by 9.3%.