Dec 28 (Reuters) – Contracts to buy U.S. previously owned homes fell more than expected in November, diving for a sixth straight month in the latest sign of a big interest rate hikes by the Federal Reserve taking the housing market as a focus. the bank seeks to control inflation.
The National Association of Realtors (NAR) said Wednesday that its Pending Home Sales Index, based on signed contracts, fell 4% to 73.9 last month from October’s revised low of 77.0. November was the lowest reading – except for a brief decline in the first months of the pandemic – since NAR launched the index in 2001.
Economists polled by Reuters predicted contracts, which will be sold after one or two months, will fall by 0.8%. Pending home sales fell 37.8% in November on a year-over-year basis.
“Pending home sales recorded their second-lowest monthly reading in 20 years as interest rates, which rose at one of the fastest paces on record this year, were cut by the number of signings on contract to buy a home,” said NAR Chief Economist Lawrence Yun. “Falling home sales and construction hurt broader economic activity.”
Contracts decreased in all four regions, led by a 7.9% decline in the Northeast. All four regions also recorded double-digit declines on a year-on-year basis, with contract signings in the West down 45.7%, the largest decline in the region.
“The Midwest region — with relatively affordable home prices — fared better, while the unaffordable West region suffered the greatest decline in activity,” Yun said.
The overall decline in signed contracts suggests existing home sales will continue to fall after posting their 10th consecutive monthly decline in November.
The housing market suffered the most visible effects of the Fed’s aggressive interest rate hikes aimed at curbing high inflation by reducing economic demand. By the Fed’s preferred measure, inflation is still running nearly three times its 2% goal, rising as early as 2022 at the fastest pace in 40 years.
This month the Fed raised rates again by half a percentage point, ending a year that saw the benchmark rate shoot from near zero in March to between 4.25% and 4.5%. % today – the fastest rates of increase since the early 1980s. Fed officials estimate that rates will rise further in 2023, likely by as much as 5%.
Unlike other parts of the economy – most of which have yet to show a significant impact from the Fed’s actions – the housing market reacts in near real time to the jump in borrowing costs made by the central that bank.
The 30-year fixed mortgage rate exceeded 7% in October for the first time since 2002, more than doubling in nine months. It pulled the rug out from what was once a hot housing market fueled by historically low-cost borrowing and a rush to the suburbs during the coronavirus pandemic.
Data last week showed that combined annual sales prices of new and existing homes through November fell 35% since January – among the fastest falls on record – to the slowest since late 2011. two and a half years which is also lower than last month.
Reporting by Dan Burns; Editing by Chizu Nomiyama
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