Existing-Home Sales Suffer Historic Drop in October as Sur

ging Mortgage Rates Freeze Buyers

Existing-home sales suffered a historic setback in October, as a sharp surge in mortgage rates forced prospective home shoppers across the United States to hit the pause button on their purchasing plans.

According to the latest housing market data released on Thursday by the National Association of Realtors (NAR), existing-home sales plunged to a seasonally adjusted annual rate of 3.75 million units. This represents a steep 5.5% decline from September’s downwardly revised pace of 3.97 million and a substantial 8.8% drop compared to the same period a year ago. Market analysts noted that this contraction pushes the pace of existing-home sales down to its lowest level since August 2010, right in the aftermath of the Great Recession.

"Home buying is difficult when mortgage rates have climbed to their highest levels since 2000, aside from a single month in 2023," says NAR chief economist Lawrence Yun.

The widespread nature of the slowdown was immediately apparent across the housing market. Notably, sales fell annually across every single price tier in October. This included the luxury segment of $1 million and above, which had previously demonstrated remarkable resilience against broader macroeconomic headwinds.

Despite the dramatic cooling in transaction volume, home prices remained stubbornly high due to ongoing inventory constraints. The national median sales price reached $416,700 last month, inching up 0.4% from a year ago and marking the highest median sales price ever recorded for the month of October.

At the same time, housing inventory showed signs of gradual expansion, offering a silver lining for buyers who remained in the market. Inventory expanded by 1.3% from the previous month and rose 4.6% year over year to reach 1.59 million housing units—representing a seven-year high. This inventory level translates into a 5.1-month supply of homes, marking the highest supply level recorded in 11 years.

"Despite fewer transactions in October, the 88 million homeowners across the country are largely in a comfortable financial position due to sizable housing wealth accumulation," notes Yun.

The friction in the market was driven primarily by borrowing costs. The average 30-year fixed-rate mortgage climbed to 7.33% in October, rising from 6.86% in September, according to data from Freddie Mac. Mortgage rates hit a three-year high of 7.40% on October 8 before beginning a gradual retreat over the final four weeks of the month.

"Higher mortgage rates certainly discouraged buyers looking for new homes," says Yun. "So right now, the market’s overall condition is challenging buyers and sellers."

Across the Board Decline

The cooling trend was reflected geographically, with regional variations highlighting the depth of the slowdown. Regionally, month-over-month sales declined by the widest margin in the West, where transactions fell by 9.7%. This was followed by the South with a 6.5% drop and the Midwest with a 3.2% decline, while sales held relatively steady in the Northeast. Looking at the annual figures, year-over-year sales slid across all four major regions of the country, with the West once again experiencing the sharpest pullback at 14.5%.

Realtor.com chief economist Danielle Hale predicts that home sales are likely to remain relatively low for the remainder of the year as mortgage rates linger at elevated levels, though she emphasizes that this environment should not be viewed as a permanent new normal.

"Instead, it reflects a perfect storm of an abrupt shift in the financial environment and large uncertainties in the pre-election period for both policy and the economy just as the housing market usually slows for the season," says Hale. "While they won’t last long-term, these challenges are likely to keep home sales near long-time lows for the next few months."

Housing affordability deteriorated further across the United States in October. The national housing affordability index registered at 100.7, down notably from 107.3 a year ago. All four geographic regions felt the financial squeeze. The traditionally expensive and undersupplied Northeast saw its affordability index drop by 8.7%, followed by the Midwest with a 7.2% decline, the South down 5.4%, and the West registering a 5.2% decrease.

Reflecting this eroding affordability, the market composition shifted during the month. The share of first-time homebuyers shrunk from 31% in September to 29% in October. Conversely, all-cash transactions increased, with the share of cash buyers rising from 27% in September to 29% in October, bolstered by the record levels of home equity that long-term owners have accumulated over recent years.

Amid these affordability challenges, distress in the market remained remarkably contained. On a positive note, the number of foreclosure sales continues to hover at historically low levels, accounting for just 2% of all market transactions.

"Based on the current underwhelming home sales pace at a time of consistent job growth, there could be sizable pent-up demand if mortgage rates decline," says Yun.

Looking ahead to the future trajectory of the housing sector, Hale expects more prospective homebuyers to eventually step away from the sidelines as the market moves further away from its recent mortgage rate peaks. However, she offers a major caveat regarding how quickly or deeply borrowing costs might fall.

"Several factors are likely to put a floor under how low rates can go, including a strong economy and jobs market, persistent inflation, and an expected need for tighter monetary policy in the near term combined with sizable demand for capital from both governments and private companies, largely to finance AI-related investments," she explains.