Americans bought homes in October at the fastest pace in nearly decade, helped out by low mortgage rates that have since started to climb following the presidential election of Donald Trump.
The National Assn. of Realtors said Tuesday that sales of existing homes rose 2% to a seasonally adjusted annual rate of 5.6 million. Sales reached their strongest pace since February 2007, a sign the market is still healing from the collapsing prices and foreclosures that ignited the 2008 financial crisis.
A stable job market and historically cheap borrowing costs have spurred demand from home buyers this year. But sales growth has been tempered somewhat by accelerating prices and a shortage of properties on the market. Sales gains could slow in the coming months as rising mortgage rates are making home loans more expensive.
Falling mortgage rates helped boost sales for much of the year, but rates surged after this month’s presidential election. The increase means that yearly debt payments for a median-priced home would rise by more than $500 on average for people trying to buy homes in November and December.
Investors expect the federal budget deficit to rise in a Trump administration, and that has pushed up the yield on 10-year U.S. Treasury notes to roughly 2.3%.
The rising interest rates have trickled into the housing market. The average 30-year, fixed-rate mortgage climbed to nearly 4% from less than 3.5% at the end of October. Few housing experts say higher rates at this stage will fully disrupt sales, although it might cause some existing homeowners to stay in place rather than upgrade to new homes and costlier mortgages. The effect of higher rates could be offset if wages accelerate strongly.
Still, the supply crunch of the past year shows little sign of reversing itself.
Sales listings have fallen 4.3% over the past year to 2.02 million homes. The shortage has pushed up the median sales price of existing homes 6% from a year ago to $232,200.
The low mortgage rates helped buyers with solid credit, although tighter lending standards appears to have hurt potential sales.
An analysis released this week by the Urban Institute, a Washington-based think tank, found that there could have been an additional 1.1 million mortgages issued in 2015 if traditional lending practices had been in place that put less emphasis on having credit scores above 700.
The tighter credit standards have helped foster a housing market that prefers cash buyers and investors who may be more likely to rent homes to tenants than live in them