Sales of previously owned homes in the United States saw a notable increase in October, marking the first annual gain in home sales in more than three years. This uptick has been attributed to easing mortgage rates and a rise in available properties on the market.
According to the National Association of Realtors (NAR), existing home sales rose by 3.4% from September, reaching a seasonally adjusted annual rate of 3.96 million. This figure aligns with the sales pace recorded in July. Compared to October of the previous year, sales increased by 2.9%, representing the first year-over-year growth since July 2021. This performance exceeded economists’ expectations, who had anticipated a pace of 3.93 million.
Home Prices and Market Trends
For the sixteenth consecutive month, home prices also rose on an annual basis, with the national median sales price climbing 4% from a year earlier to $407,200. Lawrence Yun, NAR’s chief economist, commented, “The worst of the downturn in home sales may be behind us, as an increase in inventory is leading to more transactions.”
Despite this positive trend, existing home sales are projected to be the lowest for a full year since 1995, with only two months remaining in 2024. The housing market has been in a slump since 2022, primarily due to rising mortgage rates that began climbing from their pandemic-era lows. Last year, existing home sales fell to their lowest levels in nearly three decades, coinciding with the average rate on a 30-year mortgage reaching a peak of nearly 8%, the highest in 23 years, according to Freddie Mac.
Mortgage Rate Dynamics
In September, the average rate on a 30-year mortgage dipped to a two-year low of 6.08%, likely influencing many purchase contracts signed that month for homes sold in October. However, rates have generally been on the rise since then, reaching 6.84% this week.
Economists predict that mortgage rates will remain volatile but are expected to stabilize around 6% in 2025. This situation poses a challenge for current homeowners who secured lower rates when refinancing or purchasing, as over 80% of homeowners with a mortgage currently have rates below 6%.
Inventory and Market Conditions
A broader selection of homes on the market has emerged as a positive development for buyers. By the end of October, there were 1.37 million unsold homes available, representing a 0.7% increase from September and a 19.1% rise compared to October of the previous year. This inventory level corresponds to a 4.2-month supply at the current sales pace, slightly down from 4.3 months in September but up from 3.6 months in October of the previous year. A balanced market typically features a 5- to 6-month supply.
Additionally, homes are taking longer to sell than they did a year ago, with the average time on the market extending to 29 days in October, compared to 28 days in September and 23 days in October of the previous year. Despite the increase in inventory, the current housing stock remains significantly below pre-pandemic levels, which saw about 1.8 million unsold homes in October 2019. Yun noted, “We still need another 30% growth in inventory to return to pre-COVID conditions.”
Challenges for First-Time Homebuyers
The limited inventory, particularly in the more affordable price ranges, continues to drive prices higher, making it difficult for first-time homebuyers, who typically lack home equity for down payments. In October, first-time buyers accounted for only 27% of all home sales, a slight increase from 26% in September but down from 28% in October of the previous year. Historically, first-time buyers have represented about 40% of home sales.
Buyers capable of paying in cash made up 27% of sales last month, down from 29% a year earlier. While existing homeowners have leveraged their home equity to navigate rising rates and prices, first-time buyers are often forced to save longer for down payments, delaying their entry into the housing market. This trend has resulted in an aging demographic among homebuyers; the median age of homebuyers has risen to 56, the highest on record since 1981, while the median age of first-time buyers is now 38.
In summary, while October’s increase in home sales signals a potential recovery in the housing market, challenges persist, particularly for first-time buyers and those grappling with the implications of rising mortgage rates.
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