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US home buyers and sellers are facing the worst market in a decade

Home sales and new home construction dropped in September as mortgage rates keep climbing
US home buyers and sellers are facing the worst market in a decade
Photo: Joe Raedle/Getty Images (Getty Images)
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It’s getting harder to sell a home in the US, with sales plunging to a 15-year low in September, new data show. But that doesn’t mean it’s getting easier for aspiring homeowners to buy one.

The pandemic, combined with inflation and rapidly climbing interest rates, is making up for an unusual housing market that is terrible for both sellers and buyers, a string of indicators released this week shows.

On Thursday, the National Association of Realtors reported a 1.5% drop in home sales for September, as recession fears and rising mortgage rates keep buyers on the sidelines.

But, so far, sagging home sales have not resulted in lower prices. The median sales price for existing homes was $384,800, 8.4% higher than in the same month last year.

“Despite weaker sales, multiple offers are still occurring with more than a quarter of homes selling above list price due to limited inventory,” Lawrence Yun, the association’s chief economist, said in a statement.

Why are US home prices still high?

The main reason is that housing inventories are still tight, even as the market cools off. Like home buyers, home owners are in wait-and-see mode, and holding on to their properties.

Meanwhile, the downturn in sales is dissuading builders from adding new homes to the market. In September, the number of homes under construction was 7.7% lower (pdf) than a year ago, according to the latest data from the Department of Housing and Urban Development.

Building permits, which were 3.2% lower in September vs. last year, suggest the pace of construction won’t be picking up soon.

Does the US have a housing recession?

Home builders are expecting the situation to get worse. The US housing market index, based on builders’ sales outlook, is plummeting. It fell for the 9th consecutive month in September, which also marked the largest drop since the onset of pandemic. Before then, the last time the indicator plunged this sharply was in the aftermath of the 2008 financial crisis.

Home sales data includes condos, townhomes, co-ops, and single family homes. All regions of the US are experiencing a year-over-year drop in sales.

Rising mortgage rates are squeezing home buyers

Though mortgage rates are still off their all-time highs in the 1980s, at 6.94% for a 30-year mortgage, they are nearly double than just two years ago. That’s the highest level since 2002.

Buyers now have to contend with both higher mortgage rates and home prices. One sign for optimism: Although home prices are higher than last year, they have been gradually sliding on the month since July.