Yahoo Finance Existing Home Sales Fall as Rates Continue to Climb
This article was originally published on ETFTrends.com.
Existing home sales languished in September, falling to its lowest level since 2015 as mortgage rates continue to move higher, according to the latest data from the National Association of Realtors (NAR).
Notable highlights from NAR's latest data revealed that contract closings fell from the prior month to a 5.15m annual rate, the median sales price rose 4.2% year-over-year to $258,100 and housing inventory of available properties moved up 1.1% year-over-year to 1.88m.
Meanwhile, the cost for would-be homeowners to finance the purchase of a home or existing homeowners to refinance their current home continues to get more expensive as mortgage rates have edged up 1 percentage point higher in 2018. According to Daniel Silver, an economist at JPMorgan Chase & Co., rising mortgage rates is “likely to weigh on the existing home sales data in upcoming reports over the next several months."
Related: Richmond Fed President Says Rates Must Keep Rising
Housing Affordability Heads Down
Since hitting a peak in January, the housing affordability index has been on a downward trajectory, which could go even lower as the Federal Reserve continues its rate-hiking path, which is expected to run through the end of the year and possibly most of 2019. Just last month, the Fed increased the federal funds rate for a third time this year by 25 basis points, bringing it to 2.25.
The rate hikes have been paired with a marked increase in real estate prices, which have dampened real estate activity. According to the NAHB/Wells Fargo Housing Opportunity Index (HOI), this combination of high prices and interest rates helped to bring down housing affordability thus far this year.
After the financial crisis and subprime mortgage collapse, home prices took an unceremonious fall as millions of homes faced foreclosure and were sold at heavily-discounted prices. Home prices hit a floor around 2012 and began to recover at accelerated levels, pricing out many prospective homebuyers.
The national median home price jumped from $252,000 in the first quarter of 2018 to $265,000 in the second quarter — the highest quarterly median price in the history of the HOI series.
"The recovery in housing has been really slow to get back on track," said Mark Vitner, managing director and senior economist at Wells Fargo Securities. "The numbers are all moving in the right direction, but they're not moving there very quickly and I don't think that's going to change all that much."
Investor Flight
One positive byproduct of higher rates for homebuyers is lessened competition for housing, particularly when it comes to outbidding investors wielding all-cash offers during the offer process. Furthermore, with interest rates rising, investors' monthly rental profits are less if the property was purchased with financing, which lessens the number of competition from investors as opposed to buyers who intend to occupy the home as their primary residence.
"It might cause investors to reconsider buying an investment property," Matthew Graham, chief operating officer of Mortgage News Daily, said Tuesday on CNBC's "Power Lunch." "Even those all-cash investors that would buy with cash and then refinance into an actual mortgage loan might not see as much cash flow from that, and that could open the door for first-time homebuyers to get a loan, assuming they can find a house."
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