October 2022 Home Sales Plummet for the Ninth Straight Month

This week, October 2022 home sales fell, marking the ninth straight month of declines. Despite the drawback, the investor outlook for inflation, economic growth, and future Fed policy remained relatively stable this week. As a result, mortgage rates ended nearly unchanged.

High Mortgage Rates Lead October 2022 Home Sales to Fall

Hurt by higher mortgage rates, existing home sales fell to the lowest level since 2011. More so, existing home sales dropped 28% lower than last year at this time.

Additionally, Inventory levels decreased slightly compared to last year. Currently, housing inventory sits at just a 3.3-month supply nationally. While the median existing-home price of $379,100 climbed 7% higher year-over-year, this marks a decline from June’s record high of $413,800.

Weak Single-Family Housing Starts Contributes to Falling October 2022 Home Sales

As October 2022 home sales fell, the housing inventory challenges continued for the United States real estate market. Despite the lingering inventory issue, the new construction pace continues to disappoint. In October, overall housing starts fell 4% from September, 9% lower than a year ago. Moreover, single-family starts plunged a much larger 22% from a year ago. Therefore, single-family starts sit at their lowest level since May 2020, early in the COVID-19 pandemic.

In the NAHB’s home builder sentiment survey, outlook declined for the eleventh straight month to 33. Because of the latest drop, sentiment sits at less than half what it was just six months ago. Plus, the current sentiment represents the lowest reading since 2012. Generally, economists consider a level below 50 to be negative. Home builders attribute the declining sentiment to higher prices and shortages for land, materials, and skilled labor.

October Consumer Spending Experiences Surge due to Higher Prices

Aside from the weak October 2022 home sales and housing starts figures, consumer spending saw a noticeable surge. Holistically, consumer spending accounts for over two-thirds of US economic activity. Thus, analysts and investors view consumer spending as an important indicator of the health of the economy.

In October, retail sales surged 1.3% from September, above the consensus forecast. Conclusively, this reflects a strong 8.3% higher than a year ago. While some of this increase was simply due to higher prices, bars, restaurants, furniture stores, and auto dealers showed large gains. This report helped ease investor concerns about a slowdown in shopping due to higher prices heading into the crucial holiday season.

Federal Reserve Expects Interest Rates to Rise Between 5.0% and 7.0%

This week, the Federal Reserve officials emphasized that they need to aggressively fight inflation. At present, inflation hovers far above their stated target level of 2.0%. Particularly, James Bullard said that the tightening already done “limited effects” in achieving this goal. Furthermore, the federal funds rate must be raised further to be “sufficiently restrictive.”

Bullard described one method of analysis which suggests the federal funds rate peak needs to reach between 5.0% and 7.0%. Currently, investors anticipate a 5.0% terminal. However, other Fed officials may not share his outlook, and his comments had little lasting impact on financial markets.

Looking Ahead After October 2022 Home Sales Fall

After the October 2022 home sales data, investors hope for specific Fed guidance on the pace of future rate hikes and bond portfolio reduction. Next week, New Home Sales release on Wednesday, November 30th.

The core PCE price index, the inflation indicator favored by the Fed, comes out on December 1st. Finally, the key Employment report publishes on December 2nd. Mortgage markets close on Thursday and will close early on Friday in observance of Thanksgiving.

With the publication of the October 2022 home sales statistics, mortgage rates remained nearly unchanged. Never miss an update with MBSQuoteline. To receive by-the-minute updates on mortgage-backed securities, try our platform free for 14 days.

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