Chief Economist Eugenio J. Alemán discusses current economic conditions.
With mortgage rates more than doubling from ~3% to over 7% today the difference in cost between buying a home twelve months ago compared to today is very big. Not only are existing home prices up 8.4% year-over-year, but the same $400,000 mortgage costs ~$1,000 more per month than it did back then. The combination of higher mortgage rates and higher home prices has slowed the housing market significantly, with the number of existing home sales falling for ten consecutive months to the lowest number in eight years if we exclude the short-lived collapse in home sales in 2020.
Median home prices for both existing and new home sales are likely to continue to decline as mortgage rates remain elevated and the economy continues to slow down. The NAHB/Wells Fargo Housing Market Index continued its downward trend in October, as it recorded a value of 38, the weakest reading since a reading of 37 at the outset of the COVID pandemic. If we exclude the pandemic period, this is the lowest reading since August of 2012 when the U.S. housing market was recovering from the 2008-2009 Great Recession. What’s even more concerning about this release is the large decline in both the Traffic of Prospective Buyers Index and the expectations of Single-Family Sales over the next six months. These two Indexes are more forward looking, and this month’s declines projects a grim outlook for home sales.