The troubled US housing market is “still miles away” from a recovery, a leading business cautioned Wednesday, following the release of statistics showing existing home sales plummeted in November.
According to a monthly announcement from the National Association of Realtors, sales of previously owned houses dropped 35.4% to 4.09 million in November compared to the same month a year earlier. October to November sales decreased 7.7%.
Existing house sales have decreased for ten consecutive months, which is the longest losing sequence on record. The average home was on the market for 24 days last month, up from 18 days a year ago.
The worrying decline in sales is largely related to rising mortgage rates, which have resulted in significantly costlier monthly payments for buyers. Last week, the average 30-year interest rate fell to 6.31 percent, although it has more than quadrupled since January.
“Our estimate of monthly mortgage payments was still up 53% year-over-year in November, however, reinforcing our assessment that a real recovery in sales is still light years away,” said Kieran Clancy, senior US economist at Pantheon Macroeconomics. In the meanwhile, house prices have considerably farther to fall.
This year, mortgage rates have more than doubled.
According to Clancy, home prices are still “very inflated relative to historical norms” and are expected to decline by 15 to 20% over the next year.
This year, the housing market has been under intense pressure due to the Federal Reserve’s decision to raise interest rates to combat inflation. Higher mortgage rates have scared away prospective buyers and led sellers to either reduce their asking prices or reconsider trading in their current low rate for a new home.
In November, the median existing-home price declined for the sixth consecutive month, to $370,700 after reaching a high of $413,800 in June. Still, the price was 3.5% higher than it was a year ago, indicating that the correction could be just beginning.
In the following months, home values are anticipated to fall.
In essence, the residential real estate market froze in November, approximating sales activity during the COVID-19 economic lockdowns in 2020, according to Lawrence Yun, chief economist of the National Association of Realtors.
Fed Chair Jerome Powell has admitted on multiple occasions that policymakers are observing severe housing market weakness owing to the impact of interest rate hikes.
In a speech at the end of November, Powell referred to market conditions as a “bubble.”
Powell stated, “As a result of the COVID pandemic, rates were very cheap, and people wanted to buy properties. They wanted to leave the cities and buy houses in the suburbs.” Thus, there was an actual housing bubble, with housing prices rising to unsustainable heights and a general overheating.
Powell added, “Now the housing market will hopefully emerge from the other side of it in a stronger position between supply and demand.”
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