The housing market has finally broken out of the stagnant holding pattern it's been stuck in for more than four years – just not in the right direction.
Existing home sales in October fell to 3.75 million, making an 8.8% decline in sales from a year earlier, according to the National Association of Realtors. The last time sales were this low was 16 years ago.
"It was a punch in the gut," said Joel Berner, senior economist at Realtor.com. "We expected to see a soft month but not the softest month since 2010."
Expensive mortgages are a big factor
The drop is mainly due to high mortgage rates.
In October, the average rate for a 30-year fixed rate mortgage hit as high as 7.40%, the highest since 2023. Rates have gone down a bit since then, but are still well above where they were a year ago.
Higher inflation and bond yields have driven up mortgage rates, but some of this housing slowdown was by design.
The Federal Reserve raised its benchmark interest rate in September to increase the cost of borrowing, including home mortgages. Fewer home sales and other purchases mean less economic activity, which the Fed wants in order to reach its goal of lowering inflation.
Policymakers at the Fed have signaled another rate hike could come in December, which could further slow down the housing market.
"It might seem like kicking the housing market while it's down right now for the Fed to continue a rate raising cycle but in the long run getting inflation under control is really the goal," Berner said.
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