Contracts to buy second-hand homes in the US have fallen for the fourth month in a row, as the housing market reels under the pressure of higher mortgage rates.
The National Association of Realtors (NAR) said on Friday that its index of pending home sales, based on signed contracts, fell 10.2 percent last month from August and 31 percent from a year ago.
The index, in which 100 equals the level of contract activity in 2001, fell to 79.5 in September, its lowest level since 2010.
“Persistent inflation has been quite damaging to the housing market,” NAR chief economist Lawrence Yun said in a statement.
“The Federal Reserve had to dramatically increase interest rates to stifle inflation, resulting in far fewer buyers and even fewer sellers,” he added.
The National Association of Realtors (NAR) said on Friday that its index of pending home sales, based on signed contracts, fell 31 percent in September from a year earlier.
Contracts to buy second-hand homes in the US have fallen for the fourth month in a row, as the housing market reels under the pressure of higher mortgage rates.
The index, in which 100 equals the level of contract activity in 2001, fell to 79.5 in September, its lowest level since 2010.
Yun said new home listings are down from a year ago because many homeowners are unwilling to give up the rock-bottom mortgage rates they locked in earlier this year.
“The new normal for mortgage rates could be around 7 percent for a while,” Yun said, more than double rates a year ago.
“On a $300,000 loan, that translates to a typical monthly mortgage payment of almost $2,000, compared to $1,265 just a year ago, a difference of more than $700 a month,” he added.
Contracts, which are a leading indicator of home sales figures, fell in all four regions last month.
Economists had forecast that contracts, which convert to sales after a month or two, would fall 5 percent for the month, according to a Reuters poll.
The decline in contracts signed suggested existing home sales will continue to fall this month after posting their eighth straight monthly decline in September.
The real estate market has been the sector most affected by the aggressive increases in interest rates by the Federal Reserve.
The US central bank is tightening monetary policy to curb overall demand in the economy, with annual inflation rising at its fastest pace in 40 years.
The average contract rate on a 30-year fixed-rate mortgage increased to 7.16% during the week ending October 21, up from 6.94% the previous week.
The Fed raised its benchmark overnight rate from near zero in March to the current range of 3 percent to 3.25 percent, the steepest pace of policy tightening in a generation or more.
With further policy tightening expected, mortgage rates have soared along with the 10-year note yield.
The 30-year fixed mortgage rate averaged 7.08 percent this week, topping 7 percent for the first time since April 2002, according to data from mortgage finance agency Freddie Mac.
Residential investment contracted for the sixth straight quarter in the third quarter, the longest stretch since the housing market crash in 2006, the government said on Thursday.
Faced with higher borrowing costs, many would-be homebuyers are pulling out of the market for now, and the pace of new mortgage applications is the slowest since 1997, according to the Mortgage Bankers Association.
The MBA Purchase Index, which measures mortgage activity to buy a home, decreased 3 percent from the previous week and was 42 percent lower than a year ago.
The refinancing rate fell a staggering 86 percent from last year, reflecting the lack of demand for refinancing as rates rise.
A year ago, the average rate on a 30-year fixed-rate mortgage was just over 3 percent, meaning rates have more than doubled in the past 12 months.
However, median home prices remain significantly higher than a year ago as low inventory keeps prices high. Last month, the median home price in the US was $384,800, up 8.4 percent from a year ago, according to the National Association of Realtors (NAR).
The median sales price of newly built homes was $470,600 last month, up 13.9 percent from a year ago, according to Commerce Department data released Wednesday.
US home sales fell in September as mortgage rates (in yellow) rise and house prices (in red) remain stubbornly high
Home sales volume has dropped significantly as mortgage rates rise
The combination of higher rates and stubbornly high home prices means many buyers are either out of the market or having to search for homes at a lower price than a year ago.
NAR economist Nadia Evangelou notes that while 7 percent mortgage rates were “normal” in the 1990s and early 2000s, housing was relatively more affordable at the time.
During that period, when the youngest Baby Boomers were in their 30s and 40s, mortgage payments represented about 20 percent of household income, Evangelou wrote in a note last week.
Today, however, the combination of high inflation, high interest rates and slow wage growth means that “home purchase costs exceed 30 percent of a typical family’s income,” Evangelou wrote.
“While inflation outpaces wage growth, the typical family needs to stretch their budget and spend more than 25 percent of their income on their mortgage payment,” the economist added.
