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Contracts to buy previously owned US homes have fallen for the fourth straight month as the housing market collapses under the pressure of higher mortgage rates.
The National Association of Realtors (NAR) said Friday that the Pending Home Sales Index, based on signed contracts, fell 10.2 percent last month from August and 31 percent from a year ago.
The index, in which 100 equals the level of contract activity in 2001, fell to 79.5 in September, its lowest level since 2010.
“Continued inflation has proved quite damaging to the housing market,” NAR chief economist Lawrence Yun said in a statement.
“The Federal Reserve has had to drastically raise interest rates to suppress inflation, which has resulted in far fewer buyers and even fewer sellers,” he added.
The National Association of Realtors (NAR) said Friday that the Pending Home Sales Index, based on signed contracts, fell 31 percent in September from a year ago.
Contracts to buy pre-owned homes in the US have fallen for the fourth straight month as housing market succumbs to pressure from higher mortgage rates
The index, in which 100 equals the level of contract activity in 2001, fell to 79.5 in September, the lowest level since 2010.
Yun said the number of new homes is less than a year ago because many homeowners are unwilling to give up the lowest mortgage rates they had set before this year.
“The new norm for mortgage rates could be around 7 percent for a while,” Yun said, more than double that a year ago.
“On a $300,000 loan, that equates to a typical monthly mortgage payment of nearly $2,000, compared to $1,265 just a year ago — a difference of more than $700 per month,” he added.
Contracts, which are a leading indicator of home sales, fell in all four regions last month.
Economists, according to a Reuters poll, had predicted that contracts, which would turn into sales after a month or two, would fall 5 percent each month.
The decline in the number of contracts signed suggested that existing home sales will continue to fall this month after posting their eighth consecutive monthly decline in September.
The housing market has been the sector hardest hit by the Federal Reserve’s aggressive rate hikes.
The US central bank is tightening monetary policy to dampen overall demand in the economy, with annual inflation rising at the fastest pace in 40 years.
The average contract rate on a 30-year mortgage rose to 7.16% for the week ended October 21, up from 6.94% the week before
The Fed raised overnight interest rates from near zero in March to the current range of 3 to 3.25 percent, the fastest rate of policy tightening in a generation or more.
With the expected further tightening of policy, mortgage rates have soared along with the yield on the 10-year bond.
The 30-year fixed mortgage rate averaged 7.08 percent this week, surpassing 7 percent for the first time since April 2002, according to data from mortgage bank Freddie Mac.
Residential investment contracted for the sixth consecutive quarter in the third quarter, the longest period since the housing market collapse in 2006, the government reported Thursday.
Faced with higher borrowing costs, many would-be homebuyers are currently bending the market, and the pace of new mortgage applications is the slowest since 1997, according to the Mortgage Bankers Association.
The MBA’s purchase index, which measures mortgage activity to buy a home, fell 3 percent from the previous week and was down 42 percent from a year ago.
The refinancing index fell a whopping 86 percent from last year, reflecting the lack of demand for refinancing as interest rates rise.
A year ago, the average interest rate on a 30-year mortgage was just over 3 percent, meaning the interest rate has more than doubled in the past 12 months.
However, median home prices are still significantly higher than they were a year ago, as low inventory keeps prices high. Last month, the median US home price was $384,800, up 8.4 percent from a year ago, according to the National Association of Realtors (NAR).
The median sales price for new-build homes last month was $470,600, up 13.9 percent from a year ago, according to Commerce Department data released Wednesday.
US home sales fell in September as mortgage rates (in yellow) rise and house prices (in red) remain stubbornly high
The sales volume of homes has fallen significantly due to the rise in mortgage rates
The combination of higher rates and persistently high house prices means that many buyers are being priced out of the market, or have to look for houses at a lower price than a year ago.
NAR economist Nadia Evangelou notes that while mortgage rates of 7 percent were “normal” in the 1990s and early 2000s, homes were relatively more affordable during that time.
During that period, when the younger baby boomers were between the ages of 30 and 40, mortgage payments accounted for about 20 percent of household income, Evangelou wrote in a note last week.
Today, however, the combination of high inflation, high interest rates and slow wage growth means that “the cost of buying a home exceeds 30 percent of the income of an average family,” Evangelou wrote.
“As inflation outpaces wage growth, the average family must stretch its budget and spend more than 25 percent of its income on mortgage payments,” the economist added.