US existing home sales grew by 1.5% in September,reaching a seasonally adjusted annual rate of 3.99 million units. This figure slightly exceeded the 3.98 million pace expected by economists, according to FactSet, yet it remains 2.2% lower than the previous year.
The 7.4% mortgage rate hurdle
Mortgage rates have become a significant barrier to entry, with the average 30-year benchmark hitting 7.4% last week. This represents the highest level in nearly three years, a stark contrast to the period before the U.S.-Iran conflict began in late February when rates briefly dipped below 6%. According to the National Association of Realtors, the surge in rates is driven by rising oil prices and the resulting inflation expectations that push up long-term bond yields.
The housing market has been struggling in a "rut" since 2022, when borrowing costs began their climb from pandemic-era lows. This sustained period of high interest rates has forced many prospective buyers to put their plans on hold, as the added monthly costs can reach hundreds of dollars per borrower.
A $417,500 median price record for September
The financial pressure on buyres is compounded by rising property costs, as the U.S. median sales price climbed 1.3% year-over-year to $417,500 in September. the National Association of Realtors stated that this is an all-time high for the month of September when looking at data dating back to 1999.
This price increase is part of a relentless 39-month streak of annual price growth. Lawrence Yun, chief economist at the National Association of Realtors, noted that the combination of these record prices and rising mortgage rates makes for an exceptionally difficult market. This trend keeps the annual sales pace hovering near 4 million units, which is significantly lower than the historical norm of approximately 5.2 million units.
1.6 million unsold homes and the 2019 inventory benchmark
While prices and rates are high, the supply of available homes is finally beginning to shift.. Unsold home inventory rose 1.9% from August and climbed 4.6% compared to September of last year, according to the NAR. at the end of the month, there were 1.6 million unsold homes on the market, the highest level of unsold inventory since November 2019.
This inventory level translates to a 4.8-month supply at the current sales pace.. While inventory remains below historical norms, a 4-to-6-month supply is traditionally viewed as a balanced market between buyers and sellers, suggesting that the extreme seller's market of recent years may be moderating.
Will geopolitical volatility dictate the next move in housing?
The primary unanswered question is whether the current geopolitical situation will allow mortgage rates to stabilize. Because the National Association of Realtors linked the recent rate hikes to oil prices and the U.S.-Iran conflict, the housing market's trajectory is now inextricably tied to global energy stability.
Additionally, it remains unverified if the 1.5% monthly rise in sales is a sign of a genuine recovery or simply a statistical byproduct of August's sales being revised lower. Market observers are also watching to see if the increased inventory of 1.6 million homes will finally break the 39-month streak of rising prices or if demand will remain too low to force a correction.
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