Mortgage Rate Shock at 7.5%... U.S. Home Sales Hit 16-Year Low

【Financial News correspondent Lee Byung-chul in New York】 U.S. existing-home sales fell to their lowest level in 16 years. Inflation triggered by the Iran war has driven up Treasury yields and mortgage rates, causing the housing market to freeze up rapidly. The prospect of further rate hikes by the U.S. Federal Reserve System (Fed) has also fueled concerns that the housing market downturn could be prolonged.
On the 12th (local time), according to the National Association of REALTORS (NAR), existing-home sales in October fell 5.5% from the previous month to 3.75 million at a seasonally adjusted annual rate. This was the lowest level since August 2010 and came in below the market forecast of 3.85 million.
Existing-home sales are a key indicator, accounting for most U.S. home transactions. Analysts say buyers are leaving the market as high interest rates make purchasing a home more costly.
The main cause of the housing market downturn is the sharp rise in mortgage rates. U.S. mortgage rates surged to 7.5% in early October, their highest level in three years. Yields on 30-year U.S. Treasury bonds also topped 5.4%, remaining far above their levels before the COVID-19 pandemic.
In particular, a surge in energy prices due to the Iran war fueled inflation and added to upward pressure on interest rates. As expectations spread that the Fed would tighten policy further to curb inflation, Treasury yields and mortgage rates rose in tandem.
As home sales have plunged, listings are piling up. U.S. housing inventory stood at 1.59 million homes in October. At the current sales pace, the time needed to sell all unsold homes rose to 5.1 months. Barclays and JPMorgan said this months’ supply was the highest in about a decade.
Earlier, pending home sales in September also fell to their lowest level since records began. Pending home sales refer to homes under contract but not yet closed, and are used as a leading indicator of future housing market trends.
NAR Chief Economist Lawrence Yun said, “Mortgage rates have risen to their highest level since 2000, except for one month in 2023, making it difficult to buy a home,” adding, “As a result, home sales fell to their lowest level since August 2010.”
The problem is that high interest rates are likely to persist for the time being. Last September, the Fed raised its benchmark interest rate for the first time in three years to curb inflation. Interest rate futures markets are pricing in the possibility that the Fed will raise its benchmark rate by 0.25 percentage points in December and by a further 0.25 percentage points by March next year.




[email protected] Correspondent Lee Byung-chul Reporter