Home sales jumped in October, but rally may be short-lived
The turnaround for existing sales came at a time when mortgage rates were closer to 6%. With rates on the rise, economists are dialing back sales forecasts.
Key points:
- October existing home sales posted the first year-over-year increase since July 2021, rising nearly 3%.
- But with mortgage rates back up, the outlook for next year has shifted, and Fannie Mae has significantly scaled back its 2025 home sales forecast.
- Buyer demand and mortgage application activity are up, but it’s unclear whether that will last given elevated rates and strong home prices.
The real estate industry got some good news with the latest home sales numbers, but the market still has a lot of work to do before it's back on track.
Last month, existing home sales posted their first annual increase in more than three years, according to the National Association of Realtors, rising 2.9% year-over-year and up 3.4% from September.
Market has yet to thaw
By historical measures, however, sales remain subdued: For a fifth straight month, existing home sales were shy of the 4 million mark, coming in at a seasonally adjusted annual rate of 3.96 million. Median existing home prices continue to climb, rising 4% year-over-year to $407,200, marking the 16th straight month of year-over-year price gains.
The October bump in home sales is likely the result of lower mortgage rates in August and September; subsequent rate increases are expected to put a damper on home sales for November and December.
"Stubbornly high mortgage rates and strong home prices will continue to weigh down on the housing recovery," said Molly Boesel, principal economist at CoreLogic. "Any potential thaw in the housing market will likely happen only after the pending winter months."
Mortgage rates rising again
After tapering off last week, mortgage rates jumped back up, according to Freddie Mac's weekly survey. The 30-year fixed-rate mortgage averaged 6.84%, up from last week's 6.78%. The 15-year rate averaged 6.02%, up from last week's 5.99%.
With mortgage rates returning to the 7% range, the federal government is dialing back expectations for a home sales rebound. The Fannie Mae Economic and Strategic Research Group posted a downward revision to its existing home sales forecast for 2025. It now expects home sales to rise 4% next year, down from its previous forecast of 11%.
The revision reflects the opposing economic dynamics at play, said Mark Palim, Fannie Mae's chief economist. There's an expectation for a stronger labor market and economic growth, which is good news for the overall economy, but that will keep mortgage rates elevated, strengthening the lock-in effect.
"How these competing forces balance out is currently an open question, but for now we continue to expect affordability to remain the primary constraint on housing activity through our forecast horizon," Palim said.
Silver linings: Signs of life in the market
Despite the rather gloomy outlook for 2025, the post-election housing picture is looking a little rosier. Mortgage loan application volume rose 1.7% this week, driven mostly by a surge in lower-rate FHA loans, said Joel Kan, MBA's chief economist.
"For-sale inventory has loosened in some markets and some potential buyers have been able to take advantage of increasing supply and lower FHA rates, which were down slightly in comparison to the conforming 30-year fixed rate," Kan said.
Redfin's Homebuyer Demand Index continues to climb as well. Its four-week rolling report showed demand up 17% from a year ago and at its highest level since August 2023.
"The burst of buyers and sellers jumping into the market is the result of pent-up demand from people who were waiting for the election to pass, and for the Fed to cut interest rates a second time," said Redfin Economic Research Lead Chen Zhao.
"Even though mortgage rates have been rising since both of those things happened, house hunters who had pressed pause are jumping back in. Now we're keeping a close eye on whether this is a short post-election boom, or if it translates into a steady improvement in pending sales."
Homebuyers who've resumed their search are finding more choices than in recent years. Active listings are up 25.9% compared to a year ago, according to the latest data from Realtor.com, though inventory remains below pre-pandemic levels and is expected to decline with the arrival of the holiday season.