U.S. home sales are expected to continue declining in October amid nigh-constant whispers of an impending housing market crash. Indeed, existing-home sales data, recorded by the National Association of Realtors (NAR) is due tomorrow, Nov. 21. With home prices and mortgage rates still elevated, what should you expect from tomorrow’s crucial real estate data?
Well, economists predict that this year’s dramatic home sale slump will persist in October. Homes are expected to have been sold at an annual rate of 3.9 million in October, compared to 3.96 million in September.
With home affordability at a record low and a still-pinched inventory of homes for sale, existing-home sales reached their lowest level in 13 years in 2023, per NAR. Reasonably so, the Federal Reserve’s aggressive rate hike campaign over the past two years has pushed 30-year mortgage rates to 7.64% in October, the highest rate since 2000.
Despite a marked reduction in home demand, home prices have only climbed this year. The median sale price in October, per Redfin, was $413,874, a 3.5% drop from last year. This has pushed many would-be homebuyers out of the market entirely.
Will the Fed Put an End to the Housing Market Crash Rumors?
While housing affordability has been on the decline, some hopeful homeowners are holding out hope: the Fed. Investors believe the central bank may opt to lower interest rates sooner than previously estimated.
Indeed, the recently released Consumer Price Index (CPI) report showed 0% inflation from September through October, the lowest monthly change since the Fed began its disinflation process. In fact, inflation only amounted to 3.2% yearly, which includes outliers like a 6.7% increase in rent.
With its inflation goal within reach, some economists believe the Fed may reverse course, lowering rates to stimulate the economy to avoid a potential recession.
Traders have responded to the promising inflation report by pushing 10-year Treasury yields lower, which mortgage rates closely track. As such, the 30-year rate has eased to 7.44% last week, its lowest point since September.
“The interest rate rises should be over, and the Fed will have to consider cutting interest rates seriously,” said Larence Yun, chief economist for NAR. “In the meantime, the bond market is reacting as if the Fed will be cutting interest rates next year. Mortgage rates look to head towards 7% in a few months and into the 6% range by the spring of 2024.”
While this in itself isn’t likely to push many buyers back into the market, it could be the start of a promising trend for real estate, one that has the potential to rebalance the currently imbalanced housing market.
On the date of publication, Shrey Dua did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
