Americans bought homes at the slowest pace in 16 years last month, and prices still went up

America’s housing market has finally moved after four years of stagnation, but in the wrong direction.

Existing-home sales fell to a seasonally adjusted annual rate of 3.75 million in October, down 5.5 per cent from September and 8.8 per cent from a year earlier, the National Association of Realtors (NAR) said in its monthly report on Thursday US time. It is the slowest pace since August 2010, when the country was still digging out of the global financial crisis.

The culprit is the price of money. Freddie Mac’s average 30-year fixed mortgage rate was 7.33 per cent in October, up from 6.86 per cent in September and 6.25 per cent a year earlier.

“Home buying is difficult when mortgage rates have climbed to their highest levels since 2000,” NAR chief economist Lawrence Yun said. The only exception, he noted, was a single month in 2023.

Why are prices still rising if no one is buying?

Because the people who would normally sell are staying put. The median price for an existing home was US$416,700, up 0.4 per cent on a year earlier, the 40th month in a row of annual price gains and a record for any October in NAR data.

Supply is building, slowly. There were 1.59 million homes for sale at the end of October, up 4.6 per cent on a year ago, equal to 5.1 months of supply at the current sales pace, up from 4.4 months a year earlier. Homes took a median 35 days to sell, two days longer than in September.

Rising prices on top of the highest rates in a quarter of a century hit buyers twice. NAR’s housing affordability index fell to 100.7 from 107.3 a year earlier, with the sharpest fall in the Northeast.

Who is still buying?

Fewer first-home buyers. They made up 29 per cent of sales, down from 31 per cent in September and 32 per cent a year ago. The share of all-cash purchases rose to 29 per cent, and individual investors and second-home buyers accounted for 20 per cent, up from 16 per cent a year earlier. Distressed sales, foreclosures and short sales, stayed at just 2 per cent.

The regional picture shows the pain is greatest where homes cost most. In the West, where the median price is US$624,300, sales fell 9.7 per cent in a month. The Northeast was the only region where sales held steady, at a 470,000 pace.

Joel Berner, senior economist at Realtor.com, called the result “a punch in the gut”, saying forecasters expected a soft month “but not the softest month since 2010”.

Is it going to get worse?

The Federal Reserve raised its benchmark rate in September as inflation picked up, and Fed policymakers have signalled another increase could come in December. Mortgage rates have eased from their October peak but remain well above year-ago levels.

Yun pointed to a cushion: about 88 million homeowners are sitting on large housing wealth gains, and distressed sales are historically low, so a wave of forced selling is not in sight. He also argued there could be “sizable pent-up demand if mortgage rates decline”, given steady job growth.

What does it mean for Australians?

Housing is where American interest rates hit ordinary households first, and October’s figures show those rates now biting hard in the world’s largest economy. For Australians with US property, US shares or simply an eye on where global borrowing costs are heading, the message is that higher-for-longer has arrived in the housing data, not just the forecasts.