- Existing home sales climbed 1.5% in September to an annualised 3.99 million, the first increase in four months and above the 3.95 million consensus, after a downward revision to August. NAR chief economist Lawrence Yun noted that August and September were nonetheless the two slowest months of the year.
- The data is already stale. Most September closings predate a rise of more than half a percentage point in mortgage rates since early September to 7.49%. Yun said the fourth quarter outlook for closing activity will clearly be down, maybe measurably, with more contract delays as rates climb.
- Realtor.com chief economist Danielle Hale calculated the five-week rate reset has cut buyer purchasing power by a little more than 6% across every budget, almost twice the typical price advantage of shopping in the less competitive season, and amounts to a $19,000 shock for someone with a $2,000 monthly budget.
- Supply and prices are moving in the same direction, which is unusual. Inventory rose 4.6% from a year earlier to 1.6 million, or 4.8 months of supply, holding at the decade-plus high reached in August, while the median price still rose 1.3% to $417,500, extending year-over-year increases running since mid-2023.
What Happened?
Earlier in the year the market had been making progress reducing the lock-in effect, the disincentive to move created by homeowners holding low existing mortgage rates, but the recent rate surge has halted that. NAR’s affordability index slipped 1.2% from a year ago. Sales rose 2.8% in both the South and the West, were flat in the Midwest and fell in the Northeast. Affordability is feeding the cost-of-living debate central to November’s midterm elections.
Why It Matters?
The combination of a decade-high inventory and continued price increases is the structural fact worth understanding, because it explains why housing has not corrected despite mortgages approaching 7.5%. Rising supply would normally push prices down, and it has not, because lock-in determines who lists. Homeowners carrying mortgages at far lower rates only sell when circumstances compel it, so the inventory reaching the market comes from people moving by necessity rather than from distress. Prices fall when sellers are forced to accept lower offers, and the rate structure that is suppressing transactions is simultaneously preventing the forced selling that would reprice the market. Anyone waiting for a housing correction should watch the composition of listings rather than the quantity. The purchasing power figure is the most usable number here. A 6% reduction in five weeks exceeds the entire seasonal discount buyers normally wait for, which means anyone who delayed a purchase to shop in the quieter autumn market has lost more to rates than they stood to gain on price. On a median home at $417,500 that is roughly $25,000 of value for the same monthly payment. The lock-in reversal compounds it, since the slow unwinding of that effect was the mechanism gradually restoring transaction volume, and it has now been switched off. For the economy this reading is the last clean one before the shock arrives. A modest beat on expectations describes a market that no longer exists at 7.49%, and Yun is explicit that the fourth quarter will be weaker. That matters for the consumer picture generally, with Federal Reserve data showing the highest share of households carrying payment burdens above 40% of income since 2010 and consumer sentiment’s current conditions gauge at an all-time low.
What Next?
October and November sales data will show the effect of 7.49% mortgages, and Yun’s guidance that activity will be measurably down sets the expectation. Watch whether median prices finally decline, since that requires either forced sellers or builders cutting, and builders in the South and West are the more likely source. Months of supply at 4.8 is the series to track, as a further build without price adjustment would confirm the lock-in explanation. Consumer price data and the Federal Reserve meeting later this month determine the rate path, with a hike fully priced by year end. Housing affordability remains a live political issue heading into the November midterms.
Affected Tickers and Coins: DHI, LEN, FMCC
Source: Bloomberg
