In October, the sale of existing homes in the U.S. dropped 5.9% from September and 28.4% from the previous October, according to the National Association of Realtors (NAR). This is the ninth straight month that home sales have fallen -- the longest streak since at least 1999, when NAR starting tracking the data.
Those who have been watching and waiting for the right time to buy a new home may be wondering if conditions are set to improve any time soon, or if it is a better strategy to wait a little longer. Let's take a closer look.
Is now the time to buy?
The National Association of Realtors' monthly report included some data which suggests that now is still not a great time to buy a home -- for a few reasons. One, inventory is still tight. It dropped in October by about 1% both month over month and year over year. That means that with still-reducing supply, homes are getting more offers from the buyers that are out there, which results in the price being bid up from the asking price. The NAR survey said that 24% of the homes that sold in October received more than the asking price.
That leads to the second point: Home prices are still high, although they have been coming down in recent months. The median home price in October was $379,100, which was down from $384,800 in September. It is also down from June, when median home prices peaked at $413,800. However, it is up 6.6% from October 2021, marking a record 128 straight months of year-over-year increases.
Image source: Getty Images.
The other factor that has slowed down the housing market is mortgage rates. The average commitment rate for a 30-year fixed rate mortgage was 6.90% in October, up from 6.11% in September. The average commitment rate for all of 2021 was just 2.96%.
Mortgage rates jumped to over 7% in November, but dropped last week, back down to 6.61% as of Nov. 17.
Sam Khater, Freddie Mac's chief economist, said:
Mortgage rates tumbled this week due to incoming data that suggests inflation may have peaked. While the decline in mortgage rates is welcome news, there is still a long road ahead for the housing market. Inflation remains elevated, the Federal Reserve is likely to keep interest rates high and consumers will continue to feel the impact.
When is a better time to buy?
As Khater stated, inflation may be dropping slowly. But the Federal Reserve has made no indication that it will stop raising rates anytime soon, as it seeks to bring inflation down to the 2% range. This means that the housing market probably won't improve much over the next 12 months or so.
In fact, Lawrence Yun, chief economist at NAR, said he does not expect things to improve in any significant way until 2024. That's because rates probably won't come down much, if at all, until inflation gets closer to the preferred range and the Fed stops tightening. Inventory is also expected to remain low, which Yun said is a big difference from the 2008 housing crisis. That means that prices probably won't come down much and sales will likely remain stagnant throughout 2023.
Of course, home prices vary by region, so some areas are less expensive than others while some places might have more inventory than others.
And your ideal time to buy is when you need to. So if circumstances dictate that you buy, look for something affordable based on the monthly mortgage payments, taking into account interest rates. But if you have flexibility, it might be worth waiting into next year to see where inflation goes -- as well as rates.
