Simply put, October was a rough month for the housing market.
With mortgage rates stuck above 7%, home sales took a sharp hit in October. Sales of existing homes dropped nearly 10% compared to the same time last year.
Even worse, newly pending sales plunged by well over 15% from last October. That is the steepest year-over-year drop seen since August 2023, making it the slowest October the housing market has experienced since 2018.
But that is a look backward. Real estate technology company Zillow now looks ahead toward what to expect in the coming months, and the company offers a sobering prediction.
“The acute sting of suddenly higher mortgage rates is having the unfortunate effect on the housing market that last month’s pending sales data foretold,” said Mischa Fisher, Zillow chief economist. “November is shaping up to have an even larger contraction.”
Having said that, Zillow points to what it seems to hope is a silver lining.
“Next month is likely going to be the worst of it. I expect the pace of the slowdown to ease into the new year,” Fisher wrote. “There are deals to be had for buyers able to brave the affordability headwinds in the coming months, and the continued inventory buildup means there is a lot of upside for sales into next year if we get rate relief.”
Freddie Mac reports weekly mortgage rate
On Nov. 5, Freddie Mac showed the 30-year fixed-rate mortgage (FRM) to be 7.18%.
“Mortgage rates continued their downward trajectory this week, improving the environment for prospective homebuyers against a backdrop of strong economic growth,” said Sam Khater, Freddie Mac’s chief economist.
But Matthew Graham of Mortgage News Daily (MND) had a different view of what to expect in the near future.
On Nov. 9, MND echoed Freddie Mac’s weekly mortgage rate assessment, reporting the daily 30-year FRM was 7.18%, the second-lowest daily reading since Sept. 14.
“Last Thursday’s stock market sell-off was a key factor in driving mortgage rates to the lowest levels in more than a month,” Graham wrote for MND. “More broadly, tech stock jitters have clearly correlated with a multi-week trend toward lower rates that began in mid-October.”
“As such, any time we see a pronounced bounce in stocks, we might be somewhat concerned about a similar bounce in rates,” he added.
Graham addressed that issue with a Nov. 9 statement.
“Stocks definitely bounced today with both the S&P and NASDAQ retracing more than half of the losses seen last Thursday,” wrote Graham. “Mortgage rates dropped 0.05% on Thursday, but are only 0.01% higher today.”
“One potential consideration is that oil prices continued even lower and that drop corresponded with lower bond yields at times.”
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Real estate technology company Redfin sees a different catalyst for the current mortgage rate dipping trend.
“Mortgage rates are coming down as investors dial back expectations for [interest] rate hikes,” wrote Chen Zhao, head of economics research for Redfin.
But it is lower bond yields, particularly on 10-year Treasuries, that typically pave the way for lower mortgage rates.
Zillow says rising costs impact housing market
High mortgage rates are the primary driver of housing costs, but there are other factors negatively affecting the housing market.
“A jump in housing costs likely drove the slowdown,” Zillow wrote. “The monthly mortgage payment on the typical U.S. home was an estimated $2,004 in October, assuming a 20% down payment and excluding taxes and insurance. That’s up 12.8% from last year and 4.8% higher than in September, the biggest one-month jump in four years.”
Even if you take out an FHA loan — a government-backed mortgage designed for easier qualification with lower interest rates — putting down just 5% still comes with a cost jump of nearly 12% compared to last year.
Factoring in property taxes, homeowners insurance, and regular maintenance, a median-income household now puts roughly 41.5% of its paycheck toward that monthly payment, up from around 39.2% a year ago.
“The rise in mortgage costs is almost exclusively due to higher mortgage rates,” Zillow wrote. “The typical U.S. home value fell 0.6% month over month and is just 0.7% higher than a year earlier.”
Related: Zillow warns Americans on housing market, mortgage rates