The US housing market experienced its most significant slump since the Great Recession in October as surging mortgage rates crushed demand, real estate firm Redfin said in a monthly report this week.
The number of pending home sales plunged 32.1% year-over-year to 414,492 in October – the sharpest plunge on record, according to Redfin.
Additionally, a record 17.9% of sales fell out of contract during the month. The share of homes for sale that have slashed their listing price hit nearly 24%, or double the rate in the same month one year ago.
“The Fed’s actions to curb inflation are causing the housing market to slow at a pace not seen since the financial crisis,” Redfin Economics Research Lead Chen Zhao said in a statement.
A spike in mortgage rates since January has caused a major correction in the US housing market this year. The average 30-year fixed mortgage rate was 6.9% in October, more than twice as high as one year ago and the largest 12-month spike since 1981.
The affordability crunch has prompted a steady downtick in home prices as sellers try to lure prospective buyers back to the table. The median sale price for homes sold in October fell 1.4% to $397,549 in what was the largest drop for the market in any October since 2012, according to Redfin.
Still, the median sale price was up 4.9% from one year ago – highlighting the challenge buyers face while contending with steep monthly mortgage payments and abnormally high inflation.
Inflation cooled slightly in October as the Federal Reserve’s slate of sharp interest rate hikes took effect. Further declines could prompt the Fed to ease up on their rate hikes and provide relief on long-term mortgage rates.
“There are already early but promising signs that inflation is cooling, which caused mortgage rates to drop last week. If that progress continues, buyers who recently backed out of deals may return to the market and sellers may be less inclined to slash their prices,” Zhao added.
As The Post reported, noted economist Ian Shepherdson of Pantheon Macroeconomics recently told clients that a “floor is coming” for the US housing market.
Shepherdson cited signs that mortgage rates have peaked as a sign that “demand will flatten” in the coming months.
At the same time, he warned that a decline in home prices is likely to “accelerate” in the months ahead as plunging demand ripples through the market.