U.S. home sales fell for the sixth straight month in September, a sign that housing has increasingly become a weak spot for the economy.
The National Association of Realtors said Oct. 19 that sales declined 3.4 percent last month, the biggest drop in 2 ½ years, to a seasonally adjusted annual rate of 5.15 million. That’s the lowest sales pace since November 2015.
Hurricane Florence dragged sales in North Carolina, but even excluding the storm’s effects, sales would have fallen more than 2 percent, the NAR said. After reaching the highest level in a decade last year, sales of existing homes have declined steadily in 2018 amid rapid price increases, higher mortgage rates and a tight supply of available houses.
Still, analysts are mostly optimistic about the broader economy. Most forecast growth will top 3 percent at an annual rate in the July-September quarter, after a robust expansion of 4.2 percent in the second quarter.
“Housing is no longer a tail wind for the economy, but the headwinds are blowing very gently,” said Michelle Meyer, an economist at Bank of America Merrill Lynch, before the report was released.
Housing will likely weaken further in the coming months. September’s weakness came before mortgage rates jumped further this month to their highest levels in seven years. Sales fell 4.1 percent in September from a year ago.
“Without a doubt there is a clear shift in the market,” said Lawrence Yun, chief economist at the National Association of Realtors.
One sign of the shift is that demand for existing homes is slowing. Home prices are rising at a slower rate and the supply of available houses, while low, is increasing. Buyer traffic has also declined, Yun said.
And with rents also stabilizing in many cities, many would-be buyers may not feel as much pressure to buy a new home.
“Renting itself may be seen as a better bargain as rising mortgage interest rates, still-rising home prices and sluggish wage growth dent the affordability advantage of a typical mortgage,” said Aaron Terrazas, senior economist at real estate data provider Zillow.
Sales have fallen by the most in the West, where most of the nation’s hottest real estate markets are located and where prices have soared for several years. Sales tumbled 12.2 percent in that region in the past year, compared with just 5.6 percent in the Northeast and 1.5 percent in the Midwest. They dropped just 0.5 percent in the South from a year earlier, despite a sharp decline in September due to Hurricane Florence.
The highest-priced homes are also reporting slower sales, a shift from earlier this year, when sales slowdowns were concentrated in mid-priced and cheaper homes. Homes priced at $1 million and higher saw sales drop 2 percent from a year ago.
Higher borrowing costs are making housing less affordable. The average rate on a 30-year fixed mortgage slipped this week but remained near a seven-year high of 4.85 percent. A year ago, it stood at 3.88 percent.
There are also signs that home owners are increasingly unwilling to sell as mortgage rates rise. That’s because many have rates below 4 percent, so selling a home and buying a new one would require them to accept a higher rate.
The Realtors surveyed consumers and found that 16 percent are unwilling to give up their mortgage rate and buy a new home. That’s up from a typical level of 10 percent.