Home sales fell 5.9% in October for the ninth month of declines, the National Association of Realtors said Friday. The decrease brought sales down to an annualized rate of 4.43 million, the worst since May 2020 and the lowest since 2011 if you don’t include the early months of the pandemic. The number of homes on the market fell too, reaching its lowest level since May. The continued slump came as no surprise, given that mortgage rates continued to surge last month, driving many would-be homebuyers from the market. Mortgage rates declined sharply this week, giving hope that sales could improve in the months ahead. However, some economists warn that the pandemic-era housing boom in which prices rise 42% is likely to come crashing down to earth, decimating prices. That’s bad news for homeowners, who have already seen their on-paper wealth drop an average of $30,000 over the past few months of modest home price decreases. “Collapse in prices is coming,” Kieran Clancy, senior U.S. economist at Pantheon Macroeconomics, wrote in a commentary. “We think prices need to drop by about 20% from their spring peaks in order to reach a sustainable level.” The same factor that’s crushed home sales this year—mortgage rates—might be cause for a turnaround ahead. The average rate offered for a 30-year fixed mortgage got as high as 7.08%at the end of October, according to data from Freddie Mac, more than double from the 3.22% rate that prevailed at the beginning of the year. That’s made monthly payments unaffordable for many would-be buyers. But last week, rates fell to an average of 6.61%, chopping $95 off the monthly payment for a median-priced home. Mortgage rates have been on a wild ride, hitting record lows in 2021 only to reach multi-decade highs last month. Rates tend to track the direction of yields on 10-year treasury bonds, which typically rise along with inflation fears. This year’s roaring inflation, and the Federal Reserve’s campaign of rate hikes responding to it, have driven mortgage rates skyward. But recent indications of cooling prices have taken some of the pressure off. The downtick in rates caused a 4% bump in mortgage applications last week, according to the Mortgage Bankers Association. That’s “an encouraging sign that there is still a pool of buyers standing at the ready to buy a home at the first sign of lower mortgage rates,” economists at Wells Fargo Securities said in a commentary. Indeed, home sales may bottom out soon, NAR chief economist Lawrence Yun said in a commentary. And Pantheon, alongside predicting a price crash, forecast sales would find their floor early next year as long as mortgage rates don’t rise.However, as quickly as mortgage rates fell, they could shoot back up again, the Wells Fargo economists cautioned—it all depends on what happens with inflation. Have a question, comment, or story to share? You can reach Diccon at dhyatt@thebalance.com.
