US Housing Market Continues To Collapse

Housing in the US is an unusual market, as housing prices tend to be “sticky” far more than in other consumer markets.

Which is why, despite the worst sales slump in 10 years, asking prices for existing homes continues to rise.

Sales of previously occupied US homes fell in October for the ninth month in a row to the slowest pre-pandemic sales pace in more than 10 years, as homebuyers grappled with sharply higher mortgage rates, rising home prices and fewer properties on the market.

Existing home sales fell 5.9% last month from September to a seasonally adjusted annual rate of 4.43 million, the National Association of Realtors said Friday. The string of monthly sales declines this year is the longest on record on data going back to 1999, the NAR said.

Sales cratered 28.4% from October last year. Excluding the steep slowdown in sales that occurred in May 2020 near the start of the pandemic, sales are now at the slowest annual pace since December 2011, when the housing market was still mired in a deep slump following the foreclosure crisis of the late 2000s.

The sales slump is being driven in large measure by increases in residential mortgage rates, which remain the interest rates most responsive to the Federal Reserve’s interest rate hikes this year—mortgage rates have risen more than both AAA corporate debt yields and the yields on 10 year Treasuries, with the spread between mortgage rates and Treasury yields widening as rates rise.

Despite the slump in home sales, however, inventories of housing units for sale are also declining, as even fewer homes are coming on the market—albeit at still greatly elevated prices.

House hunters had fewer properties to choose from as the inventory of homes on the market declined for the third month in a row. Some 1.22 million homes were on the market by the end of October, down 0.8% from September, the NAR said.

That amounts to 3.3 months’ supply at the current monthly sales pace. In a more balanced market between buyers and sellers there is a 5- to 6-month supply.

Those homes that are coming on the market are still seeking prices that are 40% higher than pre-pandemic asking prices.

The median home price is now down about 8% from its peak in June, but remains 40% above where it was in October 2019, before the pandemic, said Lawrence Yun, the NAR’s chief economist.

“That’s really hurting affordability,” he said. “Most household incomes have not risen by 40%.”

In the meantime, housing prices are continuing to prop up apartment rents, and are a major factor in apartment rents rising year-on-year by as much as 10% in some markets.

Dallas-area apartment rents rose on average by 10.5% in October from a year earlier, according to the latest update by researchers at Yardi Systems Inc.

Eventually housing prices and apartment rents will be forced to correct, otherwise the housing market will simply dry up completely. Such a correction, of course, means that homeowners are looking at the value of their homes dropping by as much as 40%—which would be a tremendous amount of wealth destruction, especially for those who bought at inflated prices and will be saddled with mortgage loans in amounts far greater than the likely future market value of their properties.

Until that correction happens, however, consumers are stuck between the stagflationary rock of high housing prices and the equally stagflationary hard place of high apartment rents in the midst of a deepening recession.