The latest indication that the Federal Reserve’s efforts to control inflation have hampered sales of previously owned homes came when a major leading indicator for the housing market fell to its lowest level since April 2020.
A trade group called the National Association of Realtors said this week that their measure of potential home sales dropped 7.1% in August.
The decrease exceeded even the most negative projections. Based on a 0.9% rise in July, economists were predicting a smaller 1% drop this month.
“Since August, mortgage rates have been going up above 7%, which has made it harder for people to buy homes,” said Lawrence Yun, chief economist for the NAR. “It seems like some people who want to buy a house are pausing and changing their ideas about where to live and what kind of house they want so they can better fit their budgets.”
That’s 18.7 percent less than the same time last year, according to the NAR.
Rates on mortgages hit their highest level in decades in August, and they have kept going up in September. The normal rate for a 30-year fixed mortgage in August was 7.07%. In 2002, that was the last time when the average rate was higher than 7% for a month.
The rate hit a high point last week of 7.19 percent, the highest since 2001.
Most people who have homes are paying less than six percent. After rates went down, a lot of people bought homes or refinanced their loans. Because mortgage rates suddenly went up while Biden was president, people who sell their homes now have to accept much higher rates on their future home. A lot of people are staying put instead of moving into a mortgage with a rate of 7% or more.
Because rates have gone up, a person could buy a house that is much less expensive but still have to pay more each month. Because of this, a lot of Americans are pretty much “locked in” to their houses.
Long-term interest rates have gone up, which has caused mortgage rates to go up too. The Fed has raised short-term rates and claimed that rates will need to remain high in order to bring inflation back to its target of 2%. The consumer price index has gone up about 16.2% since Biden took office. This is a lot more than the 3.2% increase in the same time period during Trump’s rule.
That’s why there aren’t many houses for sale right now, and prices are going up. The home market is the least affordable it has been in decades because of high rates and prices.
“It’s obvious that lower interest rates and more homes for sale are needed to get the housing market going again,” Yun said.
The Pending Home Sales Index is thought to show how many homes will be sold in the future. It is based on signed contracts that usually turn into finished sales 45 to 60 days afterward. It dropped to 71.8 in August. A number of 100 means that there were as many contracts as there were in 2001.
It fell 21.8 percent to 69.0 in April 2020, which was the lowest number that has been recorded since the series of readings began in January 2001.