Homes sales slide as prices stay high across the economy

Sales of new homes fell short of expectations in October as mortgage rates hovered near 8 percent amid wider stresses in the U.S. housing market.

New single‐family homes sales came in at a seasonally adjusted annual rate of 679,000, compared to a predicted 725,000, according to data released Monday by the Census Bureau and the Department of Housing and Urban Development (HUD).

The numbers for October were 5.6 percent lower than for September but 17.7 percent higher than last year. That’s off a recent high of more than 1 million homes sold in October of 2020.

The median sales price for a new house was $409,300, and the average price was $487,000, the Census Bureau reported.

The numbers come as existing home sales dropped in September to their lowest pace since  2010, according to HUD data.

September sales of existing homes fell 2 percent to a seasonally adjusted 3.96 million units from 4 million in August, dropping by 15.4 percent on the year, HUD reported, citing National Association of Realtors (NAR) data.

“Month-to-month house prices have increased modestly in the last several months, but mortgage rates have trended up recently, and inventories of existing homes for sale are still lean,” the agency said.

Following more than a year of interest rate hikes by the Federal Reserve in response to elevated prices throughout the economy, mortgage rates touched 8 percent in October, the highest level in more than 20 years.

Mortgage rates are affected by the level of interest rates, which now stand at a range of 5.25 to 5.5 percent, but they more closely follow the yield on 10-year U.S. treasuries.

The rate for a 30-year fixed mortgage has eased slightly since last month to 7.73 percent, according to financial data company Bankrate.

Housing affordability suffers

Sky-high mortgages have contributed to lower affordability of housing in general.

The Case-Schiller national home price index is now at the highest level on record, its trend line having steepened dramatically since the onset of the pandemic in 2020.

Both the NAR’s homeownership affordability index and HUD’s rental affordability index are at their lowest levels in decades.

The Fed has held off on further rate hikes at its last two meetings as inflation has decelerated throughout the economy.

After peaking at around a 9 percent annual increase last June, the consumer price index (CPI) fell to a 3.2-percent increase in October.

But shelter inflation is still high. Despite peaking in March at an 8.2 percent annual increase, costs have come down only slightly and are still up 6.7 percent year-over-year.

Prices are in a new post-pandemic bracket

While the pace of price increases has abated, the overall level of many individual prices in the economy is still much higher than it was before inflation took off in the wake of the pandemic.

Prices are about 20 percent higher overall than they were before the pandemic, according to calculations released Monday by Bloomberg Economics.

“Groceries are up 25 percent since January 2020. Same with electricity. Used-car prices have climbed 35 percent, auto insurance 33 percent and rents roughly 20 percent,” the financial data service found.

“The government data reports that show easing inflation are cold comfort, because they simply indicate prices are growing at a slower pace, not that they are returning to early 2020 levels,” it said.

Housing activists descend on Washington

Housing activists and tenants rights organizations are letting lawmakers know they’re displeased with the state of housing and their rental burdens.

Tenants groups, including the Homes Guarantee, the Louisville Tenants Union and Neighbor to Neighbor, met with Rep. Pramila Jayapal (D-Wash.) on Capitol Hill earlier this month to advocate that more stringent tenant protections be attached to federal financing for housing.

“It’s not right that I work hard every single day, living paycheck to paycheck to make corporate landlords like Starwood Capital and Barry [Sternlicht] even richer. It’s not right that the federal government is in business with the slumlords who would have us live in squalor while they brag about raising our rents,” Louisville Tenant Union member Elizabeth Olvera Perez said in a statement earlier this month.

“The rent is too damn high,” Jayapal wrote online Nov. 15. “It’s time to end the housing crisis and deliver for Americans.”

Wall Street prices in rate cuts

Amid much speculation that the Fed’s rate-setting committee is now done raising interest rates, the U.S. central bank is still officially predicting one more quarter-point rate hike this year, to max out at a range of 5.5 to 5.75 percent.

Whether or not the Fed makes good on that prediction, some investors are already betting on cuts, and that markets are pricing them in.

The Wall Street Journal reported Monday that interest-rate futures indicated 60-40 odds that “the Fed will lower rates by a quarter-of-a-percentage point by its May 2024 policy meeting.”

That’s up from 29 percent at the end of October, according to CME Group data, the Journal reported.