Because prices are way too high. Buyers’ Strike deepened even with mortgage rates at 2-year lows at the time of those sales. But rates have spiked since then.
By Wolf Richter for WOLF STREET.
Demand for existing homes is wilting further, despite surging inventories and spiking supply and much lower mortgage rates – they hit a two-year low at the time these sales were made:
Sales of existing single-family houses, condos, and co-ops that closed in September dropped to a seasonally adjusted annual rate of 3.84 million, the lowest rate of sales since the worst three months of the Housing Bust, down by 3.5% from the crushed levels a year ago, down by 38% from September 2021, and down by 29% from September 2019, according to data from the National Association of Realtors (NAR) today.
But the impact of the recent spike in mortgage rates is still to come. These were sales that closed in September but were made in prior weeks and months when mortgage rates were much lower. Mortgage rates bottomed out in mid-September, then slowly ticked up after the Fed’s monster rate cut. They didn’t start spiking until the beginning of October, which will show up as a further hit to the closed-sales data in a month or two (historic data via YCharts):
Too-high prices cause demand destruction on an epic scale.
Actual home sales in September (not seasonally adjusted, not annual rate) dropped to 331,000 homes. For the first 9 months, actual sales fell by 2.8% from the already crushed levels of the first 9 months last year.
So we updated our estimate for whole-year sales in 2024, using the 9-month year-over-year decline as factor to estimate the remaining three months. Today’s sales figures push our estimate below the 4-million mark, to 3.97 million sales, the lowest since 1995.
This demand destruction, caused by the gigantic spike in prices – they’re now way too high – is even larger than during the Housing Bust.
But during the Housing Bust, demand destruction was caused by an economic and financial crisis, as millions of people lost their jobs and mortgages blew up after years of reckless mortgage lending.
Too high prices destroy demand, which is a fundamental economic principle that even home sellers cannot escape (light-blue column = our estimate for 2024, historical data from YCharts).
Inventory and Supply spike to multi-year highs.
Unsold inventory jumped to 1.39 million homes in September, the highest in four years, and up by 23% from a year ago, according to NAR data.
Importantly, inventory jumped in September, when it normally falls in September. Inventory normally peaks in June and then declines every month for the rest of the year with the low point in December.
But this year, every month since June, inventory has risen, instead of falling. Those are the vacant homes coming on the market even as demand has wilted.
Supply, given the wilting demand, jumped to 4.3 months at the current rate of sales, up by 27% from a year ago, and the highest for any September since 2018 (4.4 months), and higher than in the Septembers of 2019 and 2017 (historic data via YCharts):
What the much lower mortgage rates since November 2023 have done is bring out the sellers, and so inventory and supply have surged. But buyers have retrenched in their Buyers’ Strike because prices are way too high.
New listings jumped in September, when they normally decline in September, according to data from Realtor.com. These are the vacant homes that are now coming on the market that homeowners had moved out of, often years ago, but didn’t put on the market because they wanted to ride up the price spike all the way, and they already bought a new home back then, and so by not putting their homes on the market when they bought one, they contributed to the inventory shortage at the time. Now they’re trying to unload them, just as demand has collapsed.
Nearly anything will sell if the price is low enough. People in commercial real estate have figured this out, selling office towers 60% and 70% below their prior transaction prices.
Surging mortgage rates in October will weigh on sales.
Mortgage rates have surged recently, but during the time these sales were made, they’d hit two-year lows. The average 30-year fixed mortgage rate started plunging in November 2023 from the 7.8% range and reached 6.14% at the end of September, the lowest since September 2022, according to data from the Mortgage Bankers Association (MBA). Then in October, it spiked to hit 6.52% a week ago, and remained there, according to the MBA today.
This weekly average hasn’t yet captured the moves over the past few days. But the daily measure of the average 30-year fixed mortgage rate by Mortgage News Daily jumped to 6.92% today. The impact of this jump in mortgage rates in October will show up in closed sales over the rest of the year.
The weekly average 30-year fixed rate via the MBA:
NAR blames everything except the problem: too-high prices.
The median price by the National Association of Realtors of existing homes has exploded by 50% since the beginning of the pandemic in early 2020, most of it in the first two-and-a-half years, fueled by the Fed’s interest rate repression and free money. It was the craziest 2.5-year frenzy ever in the housing market, and those now way-too-high prices have destroyed demand. Buyers are on strike, and they’re staying on strike.
But here comes the National Association of Realtors, trying to blame something other than the way-too-high prices: Last year, it had blamed the inventory for the collapse in demand, and then it blamed the surge in mortgage rates for the collapse in demand. But this year, inventories surged, and mortgage rates dropped. So both excuses are out the window.
So now it is blaming, you guessed it, the election:
“Perhaps, some consumers are hesitating about moving forward with a major expenditure like purchasing a home before the upcoming election,” the NAR said today.
The NAR has been blaming everything it can drag by its hairs except the actual problem: Prices are too high and have killed demand. Much lower prices would stimulate demand – and commissions for Realtors because they’d make more sales. Why is this so hard to come to grips with?
But instead, the NAR has started the long wait for wages to catch up with a 50% spike in home prices: “With wage growth now outpacing home price appreciation, housing affordability will improve,” it said.
Yes, but it will take a long while – years – before wages have risen enough to catch up with the 50% spike of home prices from already precariously high levels before the pandemic.
Commercial real estate has figured this out a while ago: Massive revaluation has caused sales to pick up. And the homebuilders have figured this out too: They’re offering homes at lower prices and with big incentives and costly mortgage-rate buydowns to sell the homes they built, and they’re running circles around sellers of existing homes.
The median price of single-family houses fell to $409,000 in September, the third month of seasonal declines from the seasonal peak in June. Year-over-year, the price was up by 2.9%, down from year-over-year price increases of 3.9% in July, 4.1% in June, 5.2% in May, and 5.4% in April.
The median price of condos and co-ops fell to $361,600 in September, which whittled down the year-over-year gain to 2.2%, from year-over-year gains in the +4% to +9% range late last year and earlier this year.
Unlike single-family house prices, condo prices didn’t book any year-over-year declines in mid-2023.
Home prices by metro vary widely.
In some metros, prices have plunged, such as in the Austin metro (-20% from the peak), while in other metros, prices have risen to new highs, such as in the New York City metro. But in all metros they spiked insanely in the 2020-2022 period, which is now causing the demand destruction,
We discuss by-metro September prices here: The Most Splendid Housing Bubbles in America: September Update: Prices Drop in 26 of 28 Big Metros, even San Diego, Los Angeles, and these are two of the 28 charts:
Demand destruction has occurred in all regions.
The charts below show the seasonally adjusted annual rate of sales, released by the NAR today, in the four Census Regions of the US. A map of the four regions is in the comments below the article.
Northeastern US: Sales fell to a seasonally adjusted annual rate of 460,000 homes, the second lowest since the 1990s, just a hair above July 2010.
Midwestern US: Sales fell to a seasonally adjusted annual rate of 900,000 homes, the lowest since the Housing Bust.
Southern US: sales fell to a seasonally adjusted annual rate of 1,720,000 homes, the lowest since the Housing Bust.
Western US: sales ticked up to a seasonally adjusted annual rate of 760,000, a little higher than some months in 2023 and 2024, but beyond that, the lowest since the 1990s:
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As promised in the article, the map of the four regions:
Several developers in my neck of the woods have finally begun building out large properties that they have sat on since ~2010. Mostly duplexes. Talk about bad timing, but I am sure the hedge funds will snap them up after the bankruptcies… 2007/2008 redux.
Greetings,
In reading Wolfstreet and opening my eyes a bit, the price of my recent home is EQUAL to the home I purchased in 2001. The value of money has dropped, my $200k mortgage, in 2001, is now only 20K more in todays money than the 200K one was in 2001.
$200,000 in 2001 is now worth 360,000 due to inflation.
Weird
I’d be interested in an article that charts yearly wage growth and yearly mortgage cost and predicts when the two will match and how far down in price houses need to come to match now.
There’s another finance site that regularly posts a ‘housing affordability index’ based on median income and median selling price at current rates.
Of course, the issue with this is that the change in sales mix has been skewing the median price up.
We get the Realtors Magazine every month. I read it to see how people in the RE industry think. If you do exactly the opposite of what they say in their publication you are more likely to be doing the right thing. The magazine is a pile of self serving propaganda, nothing more.
Ha…it’s like an old paper form of echo chamber on Facebook..
Nearly all wealthy Americans own their home. That’s why you read that rag…
Always amazed at how well presented your data is. Great work and much appreciated.
Wolf – how high or low is the 1.39M homes on offer for sale on a historical basis, not in terms of months’ supply?
The highest in 4 years. But that doesn’t really matter that much. What matters are these two things:
1. Inventory jumped in September, when it normally falls in September. Inventory normally peaks in June and then declines every month for the rest of the year with the low point in December. But this year, every month since June, inventory has risen, instead of falling. Those are the vacant homes coming on the market even as demand has wilted.
2. Inventory in relationship to demand: months’ supply, which spiked because inventory has surged even as demand has plunged.
This phenomina is similar to a bear that should go into hibernation, but to the surprise, is still out and about rummaging for food because its not stored enough fat yet.
If the bear stays out much longer we’ve got a problem.
Houses are still selling, 3.84 million sold, its a good snack but not good enough to fatten the bear.
I’m calling it right now: 2025 spring “selling” season will end up being one of the worst on record due to delusional sellers that refuse to come down to earth.
Let’s hope so..I would love to see this spring season being the first where sales and volume are lower than winter… that’ll be something
Split this answer into two categories existing home sales and new build construction.
New build construction will but rates down and entire consumers to their direction. These buy downs are more enticing than traditional methods.
Existing homes, I’d love to see a correction. It’s time the lipstick on a pig treatment stops.
I do standby still saying wages must increase. It is a very real situation here where mortgage rates could exceed 7% even 8%. The rate cut was the fed indirectly favoring inflation over all right deflation. We will see soon.
‘Bright’ Research commentary for October 2024 states that:
“Falling mortgage rates in July and August were expected to bring more buyers into the market, but some home shoppers may be holding out for rates to fall further. Others may be taking a wait-and-see approach in the lead up to the Presidential election. Year-to-date, overall home sales activity is tracking at about 2023 levels.”
Nope, no mention of home prices.
“What are the downside risks to the performance of the housing market in Q4? Affordability is still a real challenge. Even with lower mortgage rates, some prospective homebuyers are still going to be priced out.
If inflation takes a turn and mortgage rates do not come down, home sales could be lower. If the economy weakens significantly, there could also be a slowdown in homebuyer demand. However, neither of those prospects seems very likely. ”
Still no acknowledgment that sky-high home prices are the main culprit. I mean, *some* home buyers may be priced out right now, but apparently most are not.
/facepalm
And even with the buyers that aren’t priced out why would they buy right now? Rent is always an option and given competing places to put their money why would they?
I see some of this simply as people had mobility before, as they might have wanted to move and could without a huge impact. Now moving to a nearby town, up sizing or downsizing, moving to a new school district suddenly is more expensive. I was in the process of moving from Sacramento to Portland for not any particular good reason other than a change and stopped plans. People in Oregon probably don’t want another transplant so positive on that front!
Oregon is mostly California transplants. Portland is great for that… Bend unfortunately, is full. 😀
The adventure of Glen going nowhere…staring…Glen.
My conclusion is that some elected official will ride in to rescue the housing dansel in distress and get her killed in the process….they can’t help it.
Maybe cash for clunker houses to thin the herd.
It’s anecdotal, but a lot of homes cut prices a bit and are moving in my Chicagoland area. I don’t know if October will be as bad as this, even with the higher mortgage rates.
The truly impressive thing is that these low sales — which match 2024 levels with the equally low 1994 levels — have seen 30 years of frantic housing construction across North America (Canada & U.S.). There is an even greater supply of housing now than there was in 1994. That tells you something about how demand has fallen out of the floor of the marketplace …
Thanks WR for this report.
Home prices need to fall a lot for them to be remotely affordable.
In my neighborhood, home prices increased by 100% plus post covid which is just wild.
Coming Spring would be entertaining for sure.
Re: “With wage growth now outpacing home price appreciation, housing affordability will improve”
I guess that’s one way to say home prices are crashing.
Zooming out just a tad, wage growth spiked a bit for a year after the depth of the pandemic, but overall wage growth is anemic and normalizing to new levels that don’t support outrageous home prices.
The level of cheerleading by NAR is totally inline with Fed cheerleading and rate cutting — and of course, Wall Street would have you believe earnings growth is strong — even though S&P 500 Shiller Cyclically Adjusted Earnings Yield have crashed 15.4% YTD (according to ycharts).
In terms of wage growth as a metric, it’s probably something that doesn’t matter — this time is different!
It seems like sellers are in no rush to sell (keeping their asking prices too high), and buyers are in no rush to buy (not willing to pay crazy prices). At some point something has to give, and it will be the sellers, perhaps pushed along by a recession. But there is no sign of recession now, so the market will just be sort of stupid, as it has been the last couple of years. Some leaks have appeared in the dam (the dam being the damn sellers). I am waiting for the dam to burst. It should be glorious, for buyers.
“So now it is blaming, you guessed it, the election:
“Perhaps, some consumers are hesitating about moving forward with a major expenditure like purchasing a home before the upcoming election,” the NAR said today”
These fxxking people, if there’s a gaslight of the century award, they would be right up there on the podium along with Tobacco and oil industries.. they are going to shill as long as they can but 50% up in last couple of years, under what universe is that normal?
Still long long long way for price to come down in expensive markets and let’s hope a pathetic 10% price doesn’t all of a sudden entice buyers to start biting..I say maybe 30 to 40% correction then you’ll see more fair value even at 6 to 7 mortgage rates
After the election they’ll move on to blame climate change, lol.
“but 50% up in last couple of years, under what universe is that normal?”
One in which the central bank printed a f”*ckload of money, maybe?
Look, no one hates realtors more than I do. But they don’t set prices, they don’t write checks to buy, etc., they only have a minor and EXTREMELY annoying influence, not much different than those ridiculous auctioneers at car or whatever auctions. BLAME THE BUYERS.
Oh trust me, I do blame the buyers and hate some of them just as much if not more, like the ones that bought over bidding everyone at above asking price during the last couple of years or the ones that come in here complain about high prices yet still put in an offer at ridiculous price and bitch about getting outbidded and wonder why price is so high…
Toxicity only thrive when there’s enough enablers to support it. This is true with this housing market, true for toxic relationship or narcisscists to get away without consequences.
Supply up 23%…so much for”housing shortage” that I constantly hear.
It’s a BS narrative that’s about as valid as why there’s solid fundamentals that 30-50% up in the last 2-3 years is the norm as they say….or how the last 08 crash was all because of foreclosure and nothing else. It was a catalyst for sure but prime borrowers back then were defaulting too and affordability was also an issue last cycle…but those points are always left out in RE talking points
Anyone hearing of homeowners/Sellers refinancing, taking the equity, then walking away… essentially selling the house back to the bank?
It’s clearly appearing that the current crop of homeowners who’ve listed their homes for sale are stuck in the old economic model that a home was a safe investment for making a huge windfall in a few short years. Does greed play a part?
The new model has fully emerged in that a home is no longer an investment, but a place to live. Thus the Buyer’s Strike.
In terms of your first sentence: if someone does that intentionally, as you indicate, it’s mortgage fraud.
Maybe if you are bouncing back to a foreign country that doesn’t have reciprocity for banks? There was some guys in my area that were wanted for other things that Heloc’ed their properties to the max before trying to go back to Pakistan. They were stopped at Dulles airport. If it wasn’t for other things and existing issues they probably would have made it.
Wall Street Journal has an article showing Home Equity is now 35 trillion. They said this comes to about $400k per homeowner. Not sure how they get that number.
Of course it depends where you live because my home is only worth $415k. and the median home is selling for around $400k.
Anyway, they think there is going to be a Home Renovation boom as people hit the home equity for renovations.
HD to $500 or more!
Those renovations were done during the pandemic when people had time off and free money.
To the moon baby….I guess at $35T, you can see why people like to argue the FED or government cannot let the housing market adjust down or let alone fall…another too big to fail for you…at least that’s the argument that camp will use anyway,..
My oldest builders are back to doing remodeling.
They were able to let go of the occasional want to work guys.
Let the youngsters chase the new construction with the lowest bid.
50% Wolf? How about 100% and drop of 5% still leaves houses 95% overpriced, so you are damn right we are still on strike. The quantity and quality of the dog sh•t flips in my so cal beach town is appalling. Junk all day long for fantasy prices because a $13k monthly payment is totally normal. I love the people who have the house they paid $1m+ a year ago for $500k more because real estate only goes up right? Long way to go and nowhere to go but down.
New roof, new water heater, and the school taxes are going up, up, up.
School taxes go up and the kids are getting dumber
The housing market is not exactly liquid, however. As an illiquid asset (you have to live somewhere), a game of musical chairs gets played whereby each asset is sold and another one picked up again right away. It’s a zero-sum pie.
No, because prices are always set on the margins. The margins on the selling side are set by elderly and/or deceased people who must sell, and speculators who cannot afford to sit on a loss. The margins on the buying side are younger people – first time buyers, second-home buyers, and speculators.
The “trade this for that” owners you are thinking about net to zero in the accounting, but they aren’t the ones setting prices.
Holding a house the last 2 years got you crushed compared to dumping and getting the proceeds in the markets.
Yeah but having a roof over your head and a place to sleep is pretty nice.
Unless your broker lets you sleep in their lobby.
Would the Fed purposely move the 10 year higher to keep the mortgage rates high in order to reduce these ridiculous prices? And what about the real estate tax rate tied to the EVA factoring.Home ownership sucks, at the current price points.
I’ll give it to you Wolf, always keeping us thinking!
The rates on 10 year US Treasuries are established by the free markets and the Federal Reserve has nothing directly to do with that at all. Those yields are what are most influential of mortgage rates plus about 3% and they will do whatever the markets so decide.
I think the key word is “directly” because their business model is to manipulate the “free markets”.
Not that there’s anything wrong with that!
The Fed doesn’t control the 10yr yield, the market does. The Fed understands that overpriced homes and locked-out first time homebuyers is disastrous to the country over time (think declining birth rates, increasing populism, etc). The Fed will continue to lower rates as inflation is gradually abating, and accelerating job losses remains a real threat to their dreamy “soft/no landing”.
Remember, the Fed forced the 10-year rate down to less than 1% a few years back. Monetary authorities can influence long rates through open market operations and autocratic statements like “we’ll do what it takes”.
Re: “ The Fed will continue to lower rates as inflation is gradually abating”
I’m seeing several signs of very sticky inflation, like today, looked at Proshares Inflation Expectations Etf (RINF).
It’s a tiny barometer, but it tends to lead the 10 yr and it’s headed upward, as is the 10.
In general, the macro environment is inflationary and the total lack of concern from anything related to the election cycle — screams deficit and treasury issuance and future inflation — however, I think this episode of inflation is somewhat transitory and not a long term crisis, as in years ahead.
We’re at an inflection point where a lot of things are close to breaking and I suspect, this narrative of hesitant buyers is going to be a dominate theme for many months, as people look for safe harbors.
The Fed cutting is part of the trifecta that a lot of people are praying for — huge rate cuts, tax cuts and anything to keep the equity bubble in parabolic ascent.
The deficit can triple as long as people see their wealth rising. Who cares?
I’m imagining what the chart would look like as “existing home sales per capita”. About 30% more people in the US now than back in 95’
“per household,” I guess would be better. Yes, it would look even worse.
“Perhaps, some consumers are hesitating about moving forward with a major expenditure like purchasing a home before the upcoming election,” the NAR said today.
LMAO. Imagine actually believing this. Only an economist could come up something this ridiculous.
Are there any statistics on the percentage of all the housing stock that has turned over in the past 4 years and the implications for what would happen when that many homes are upside down with negative equity?
I’m not sure if this qualifies as irony, but…
John Rubino, in his latest substack, posted a number of “arguments” for why we’re about to enter a recession and the fed will be “forced to do QE” (I know, I’m sick of that phrase too).
In his last volley, and right above his concluding paragraph where he says blah blah blah QE, is a reference & link to… Wolf’s 1 Oct article on the epic office glut.
https://wolfstreet.com/2024/10/01/epic-office-glut-hits-records-in-san-francisco-atlanta-chicago-los-angeles-seattle-washington-dc-dallas-availability-rate-dips-to-30-houston-rises-to-29/
NB: I don’t usually read Rubino’s stuff, but the article was titled ‘Bonds Don’t Trust the Fed’ so I was intrigued; instead it was just a bunch of anxiety about higher rates and general QE-mongering.
All due respect to WS and various posters…. I don’t get the whole “unaffordable” thing, and how the market is frozen or whatever terms you want to use. Sales are down 20-25%, not 90%! PLENTY, as in MILLIONS of homes are still selling. Those buyers may be idiots, or who knows. But there are still plenty of them.
I figured our area was pretty dead. Then I looked at recent sales and pending. It’s pretty much within normal ranges, and this is a pop 100,000 area where the median is >$1m, with tons of sales $3m+.
If Apple’s revenues plunge by 30% from one year to the next, it’s not a nothingburger but a full-blown catastrophe-burger for the stock and for the S&P 500. I’d love to be on that earnings call.
So long as the stock markets are near all time highs and employment is at or below 4%, there won’t be a residential RE crash.
All that we are seeing now is a little air coming out of the bubble. This will likely continue for a few years unless something pops the bubble.
No one has a crystal ball. None of us can predict how this plays out.