Existing-home sales sink to 2010 lows as higher rates bite

What happened in the market

October's resale pace dropped to 3.75 million on a seasonally adjusted annual basis, down 5.5% from September, according to NAR. That was the biggest month-to-month fall since January and the slowest clip since August 2010.

Sales were 8.8% below last year. The month's closings largely came from contracts inked in September, when a bond selloff shoved mortgage rates past 7% and foot traffic thinned. Rates climbed further in October, and while Freddie Mac says the 30-year rate eased to 7.11% from 7.18% last week, it was the fourth straight weekly dip off a higher base.

Economists surveyed by the Wall Street Journal had penciled in a smaller 3.8% decline.

Why buyers pulled back

Real-estate pros say open houses went quiet once rates broke 7% in September. Earlier in the year the mood was brighter: a brief move below 6% in February sparked a burst of demand and hopes of a rebound. After the U.S. attacked Iran, rates spiked and continued climbing while the conflict dragged on, with big outlays by artificial-intelligence firms further stoking inflation.

Inflation data did not help. The Labor Department reported consumer prices rose 0.4% in October, above forecasts, which pushed up 10-year Treasury yields that mortgage rates tend to follow. According to economists, borrowing costs will probably remain high next year because the Federal Reserve is under pressure to continue raising short-term rates to combat persistent inflation.

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Prices, inventory, and bargaining

Even with demand frozen, prices are not cracking. NAR reported the national median price for existing homes increased by 0.4% compared with a year ago, reaching $416,700. With many owners hanging on to older, cheaper mortgages, listings remain tight, which has kept prices near records.

Fewer bidders have shifted leverage to those still shopping. Sellers are offering bigger concessions, often to help buy down rates. In Denver, agent Christina Ray said 65% of October closings included seller sweeteners. Her take: "We're really in uncharted territories when you're talking about record sale prices coupled with higher interest rates." She added, "Everyone seems to be waiting for the rates to drop and I'm just not super optimistic that that's going to be happening next year. So, I think we need to navigate the market that we're currently in."

The investor angle

Some buyers are finding openings. In Northwest Arkansas, John Krueger closed last month on a home originally listed at $540,000 for $490,000 and used an adjustable-rate mortgage starting at 6.15%. "I know that sadly a home's not affordable for very many," he said. "I knew there wouldn't be a ton of buyers."

Looking ahead, Goldman Sachs Research last month projected just 3.9 million existing-home sales in 2027, versus pre-pandemic years when annual totals topped 5 million with room to spare. The last calendar year with fewer than 4 million sales was 1995. In plain English: thin volumes, firm prices, and higher financing costs are likely to keep shaping housing-linked names in your portfolio, from homebuilders to mortgage and title players.

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