U.S. existing home sales plunged to their lowest level since 2010

REAL ECONOMY BLOG | November 21, 2023

Authored by RSM US LLP

Sales of existing homes in the United States extended their slump for the fifth consecutive month, primarily because of elevated mortgage rates that have dampened both demand and supply.

In October, sales of existing homes dropped to 3.79 million, marking the lowest point since 2010, the National Realtor Association reported on Tuesday.

Many homeowners who locked in low mortgage payments are choosing to stay put, which has reduced the supply of existing homes. Additionally, the increasing availability of new houses with better deals has further shifted demand from existing homes.

The median price for existing homes fell for the fourth consecutive month to $391,800 from $392,800 in September. But they are up by 4.4% from a year ago, which is a result of persistent inflation and declining supply.

Because of the high mortgage rates, all-cash buyers accounted for 29% of all purchases, which is 3 percentage points higher than a year ago. First-time buyers made up 28% of the market, while investors accounted for only 15%.

At the current selling pace, there was about 3.6 months of inventory left on the market, the highest since June 2020, although still lower than the market’s pre-pandemic rate of about six months.

The takeaway

Elevated housing prices and high mortgage rates have been the two most significant factors contributing to the decline in sales. While it is uncertain if we have reached the bottom in sales, there is potential for a turnaround next year, with the Federal Reserve expected to cut rates in the summer, according to our estimation.

But because the work-from-home trend is expected to continue in the post-pandemic world, there should be a permanent shift in demand from existing homes to new homes. New homes are situated in areas that are more affordable than existing homes.