Pending Home Sales Crater in September as Mortgage Rates Hit 7%
Pending home sales fell for the fourth straight month in September, as mortgage rates topped 7% and the cost of buying a house soared, the National Association of Realtors said on Friday.
“Persistent inflation has proven quite harmful to the housing market,” said NAR Chief Economist Lawrence Yun. “The Federal Reserve has had to drastically raise interest rates to quell inflation , which has resulted in far fewer buyers and even fewer sellers.”It is further evidence, along with a slowdown in new residential construction, that the heady days of the housing sector seen in 2021 and early 2022 are over.“For buyers of a median-priced home who use a 20% down payment, the monthly mortgage payment has shot up a shocking $1,000 higher than last year ,” George Ratiu, senior economist and manager of economic research at Realtor.com said. “With wages falling behind on account of inflation , and rates rising, buyers’ purchasing power has been reduced by over $100,000.”
There is also an effect on existing homeowners, who may be looking to sell as prices come off their highs of earlier this year.“The number of new listings on the market is also down considerably, as existing homeowners sit tight with sub-3% mortgage rates ,” said Lisa Sturtevant, chief economist at Bright MLS. “The combination of sagging demand and limited inventory means that home sales activity will continue to drop off during the last quarter of the year. Overall, total home sales for 2022 will be down significantly from last year , likely hitting a level not seen since 2014.”The rise in rates and drop in sales activity is a direct result of the Federal Reserve’s tightening of monetary policy to combat inflation . The Fed is seeking to cool down the economy even if that results in higher unemployment and even a recession.Earlier Thursday, the government’s personal consumption expenditures price index showed that spending increased 0.6% in September as Americans dipped into their savings and credit cards to continue consuming even as inflation held steady during the month.
“Today’s report showed some positive signs: the topline PCE inflation number slowed, and incomes and consumer spending came in slightly above expectations,” said Kayla Bruun, economic analyst at data analytics firm Morning Consult. “However, there are still reasons to worry. Core PCE inflation continued to rise, confirming consumers are still contending with elevated prices .”Also Friday, the University of Michigan’s consumer sentiment survey for October remained largely unchanged and reflected a mixed bag of improving supply chain issues and worries over inflation and uncertainty over the economy’s future course.“This month, buying conditions for durables surged 23% on the basis of easing prices and supply constraints,” said Joanne Hsu, survey director. “However, year-ahead expected business conditions worsened 19%. These divergent patterns reflect substantial uncertainty over inflation , policy responses, and developments worldwide, and consumer views are consistent with a recession ahead in the economy.”
The rise in rates and drop in sales activity is a direct result of the Federal Reserve’s tightening of monetary policy to combat inflation. Friday, the University of Michigan’s consumer sentiment survey for October remained largely unchanged and reflected a mixed bag of improving supply chain issues and worries over inflation and uncertainty over the economy’s future course.
“This month, buying conditions for durables surged 23% on the basis of easing prices and supply constraints,” said Joanne Hsu, survey director.
