Existing Home Sales Hover Near Record Lows As Affordability Gap Widens

With mortgage rates soaring, expectations were for a fourth straight month of declines in existing home sales. Instead sales rose 1.5% MoM (-0.8% exp) thanks in part to a downward revision for August (from -2.0% to -3.2% MoM)…

At least some of last month’s modest improvement predated the more than half-point climb in mortgage rates since early September to 7.49%. September’s gain also belies the formidable challenges facing the nation’s housing market.

The total existing home sales SAAR remains below the 4.00mm Maginot Line…

Despite the increase, “August and September marked the two slowest months for home sales this year,” NAR Chief Economist Lawrence Yun said in a statement.

“Further increases in mortgage rates in recent weeks mean fewer buyers can qualify to purchase a home.”

Earlier in the year, the country had been making some progress in reducing the so-called “lock-in” effect – the disincentive to move that homeowners face because of their low existing borrowing costs.

However, the recent surge in rates has halted that progress.

It also adds a “$19,000 shock” for would-be buyers with a $2,000 monthly budget, Realtor.com Chief Economist Danielle Hale said earlier this month in a blog post.

“The reset in rates over the last five weeks has shaved a little more than 6% off of the purchasing power of buyers across every budget, which is almost twice the typical price-savings advantage of buying in this less competitive season,” Hale said.

Meantime, the supply of previously owned homes for sale climbed 4.6% from a year ago to 1.6 million, NAR data show. That represents 4.8 months of supply at the current sales pace, staying at the more than decade high it reached in August.

Previously owned home sales in both the South and the West rose 2.8% in September. Sales in the Midwest were flat and activity in the Northeast fell.

“The fourth-quarter outlook for closing activity will clearly be down, maybe even measurably down,” Yun said Tuesday on a call with reporters.

“We are seeing more delays in the contracts with these rising interest rates.”

Finally, with the spread between current mortgage rates and the effective average mortgage rates that American homeowners have back near record wides…

…we don’t see any signs of trapped sellers meeting buyers’ affordability levels any time soon!!