Existing homes sales in the US slumped in October to a four month low due to low supply, lower affordability and higher mortgage rates which is limiting further growth from earlier this year.
A 3.2 percent drop in sales contributed to a 5.12 million annual rate, according to the National Association of Realtors (NAR). The association blamed the government shutdown last month as a contributing factor, but it is unsure whether or not the overall effect it had on the housing market.
However, the more likely scenario is that the median cost of existing property increased in October by 12.8 percent. The NAR’s chief economist Lawrence Yun said “clearly, the affordability conditions are worsening.” The lack of supply is hurting demand as prices continue to rise.
Also, first time home owners are reluctant to purchase homes with mortgage rates the way they are currently in hopes that they will decline – a common but troubling problem in a weak economy. Freddie Mac reported the average 30-year fixed rate mortgage was 4.35 percent in the week of November 14. This is 1.1 percent higher than a year ago.
Early this morning, retail sales came in higher than expected and beat the previous month’s print that was revised upward to zero. The increase in retail sales is giving more evidence that the public was not effected too greatly during the government shutdown, and lower gas prices could have spurred higher consumer spending.
“Maybe the rhetoric was just a little bit overblown in terms of the magnitude of the economic impact behind the partial government shutdown,” said Michael Brown, economist for Wells Fargo Securities.