Sales of previously occupied homes in the United States fell in October to their slowest pace in more than 16 years, as mortgage rates above 7 percent kept buyers on the sidelines. Existing home sales dropped 5.5 percent from September to a seasonally adjusted annual rate of 3.75 million, the National Association of Realtors said on Thursday. That was the lowest level since August 2010, when the market was still working through the aftermath of the Great Recession.
Sales were down 8.8 percent from a year earlier and came in below the 3.85 million pace economists polled by Reuters had expected. Home sales are counted at the closing of a contract. October was the third month in a row that the annual sales pace stayed below 4 million. Sales have hovered close to a 4 million annual pace since 2023, far short of the historic norm of about 5.2 million.
Mortgage rates drove the home sales slump
The home sales slump was driven by borrowing costs. The average rate on a 30-year fixed mortgage was 7.33 percent in October, up from 6.86 percent in September, according to Freddie Mac. The rate hit 7.40 percent on October 8, its highest level in nearly three years. Rates jumped above 7 percent in late August and have risen 142 basis points since the United States and Israel attacked Iran at the end of February, Freddie Mac data show.
“Homebuying is difficult when mortgage rates have climbed to their highest levels since 2000, aside from a single month in 2023,” said Lawrence Yun, the association’s chief economist. “Higher mortgage rates certainly discouraged buyers looking for new homes,” he said. “So right now, the market’s overall condition is challenging buyers and sellers.”
Prices stayed high as sales fell
The median sale price rose to 416,700 dollars in October even as home sales fell, up 0.4 percent from a year earlier and the highest for the month of October. Prices rose even as sales fell, because the number of homes for sale stayed low by historic standards. Inventory rose 1.3 percent from September and 4.6 percent from a year earlier to 1.59 million homes, a seven-year high. That left 5.1 months of supply, the highest level in 11 years.
Sales fell from a year earlier in every price range, even in the market for homes priced at 1 million dollars and above, which had held up better than the rest of the market. Regionally, sales fell most sharply in the West, down 9.7 percent from September and 14.5 percent from a year earlier. Sales fell 6.5 percent in the South and 3.2 percent in the Midwest, and held steady in the Northeast.
First-time buyers lost ground in the home sales slump
First-time buyers made up 29 percent of sales in October, down from 31 percent in September. Cash buyers rose to 29 percent of sales from 27 percent, helped by the record equity homeowners have built up. Foreclosure sales stayed low at 2 percent of all transactions. The national housing affordability index fell to 100.7 from 107.3 a year earlier, and affordability worsened in all four regions.
Danielle Hale, chief economist at Realtor.com, said home sales are likely to stay close to longtime lows for the next few months. She said the market reflects a perfect storm of an abrupt shift in the financial environment and large uncertainties in the pre-election period for policy and the economy, just as the housing market usually slows for the season. She added that she does not see the low pace as the new normal.
Yun said the weak pace of home sales at a time of consistent job growth points to sizable pent-up demand if mortgage rates decline. Hale said more buyers should come off the sidelines as the market moves away from recent mortgage rate highs, but she warned that several factors are likely to put a floor under how low rates can go. She named a strong economy and jobs market, persistent inflation, an expected need for tighter monetary policy and heavy demand for capital from governments and private companies, largely to finance investments in artificial intelligence.
What comes next for home sales
The housing market has been in a slump since 2022, when mortgage rates began to climb from pandemic-era lows. Sales of previously occupied homes were essentially flat last year and stuck at a 30-year low. Yun expects home sales this year will end up lower than in 2025. The latest figures leave buyers waiting for cheaper borrowing costs and sellers waiting for demand to return.