By Priya Raman

U.S. existing-home sales fell to a 3.75 million annual pace in October, the weakest since August 2010, as rising mortgage rates pushed prospective buyers toward the sidelines.

The National Association of Realtors (NAR) reported on Thursday that the seasonally adjusted annual rate (a sales pace adjusted for seasonal patterns and expressed as a yearly total) dropped 5.5% from September and 8.8% from a year earlier.

Economists tracked by FactSet expected 3.8 million units, so October undershot the consensus. The August 2010 low came while the market was still reeling from the late-2000s U.S. housing crash.

Lawrence Yun, NAR's chief economist, said: “It is just a tough market for buyers and sellers.” NAR data show sales hovering near 4 million annually since 2023, against a historic norm closer to 5.2 million. October marked the third consecutive month with the pace below 4 million.

What pushed mortgage rates higher?

The U.S. housing market has slumped since 2022, when mortgage rates began climbing from pandemic-era lows. Sales of previously occupied homes came in essentially flat last year, stuck at a 30-year low. Yun expects sales this year will likely finish below their 2025 level.

Interest costs have intensified since the war between the U.S. and Iran began in late February. Higher oil prices have lifted inflation expectations, pushing up long-term bond yields (the market rates lenders use to guide home-loan pricing).

The average 30-year mortgage rate reached 7.4% early in October, its highest in nearly three years, after briefly dipping below 6% before the war. Rates have eased since that peak but have stayed above 7%, and could remain elevated.

Persistently high inflation has raised the odds that the Federal Reserve will raise its key interest rate at its December meeting. The central bank held rates unchanged late last month after raising them in September.

The Fed does not set mortgage rates, but bond investors watch its short-term rate decisions closely, allowing those decisions to influence the longer-term yields used in home-loan pricing. Priscilla Thiagamoorthy, a senior economist at BMO Capital Markets Economic Research, wrote in a Thursday note. She warned: “With sales at a 16-year low, and the Fed poised to raise rates further, housing will remain under pressure for some time.”

Why did sales stay weak after the rate peak?

Many homes sold in October probably went under contract in September or August, when Freddie Mac's average 30-year mortgage rate ranged from 6.65% to 7.03%. The sharp rise in mortgage rates can add hundreds of dollars to monthly payments, so many would-be buyers put their shopping plans on hold.

First-time buyers accounted for 29% of purchases, down from 31% in September and 32% in October last year. Historically, first-time buyers make up close to 40% of sales. The 3-percentage-point year-over-year decline shows first-time buyers pulling back as financing costs rise.

What does rising inventory mean for negotiations?

Unsold inventory reached 1.59 million homes at the end of October, the highest since November 2019, even though inventory remained below historical norms. NAR reported a 1.3% rise from September and a 4.6% increase from a year earlier.

At October's sales pace, that inventory represents 5.1 months of supply, the largest since November 2015. Traditionally, 4 to 6 months of supply indicates a balanced market between buyers and sellers.

A 5.1-month supply can give buyers more leverage, particularly for properties that have gone weeks or months without offers. Buyers who can afford current rates, or pay all cash, also have a wider selection than in recent years because homes now sit on the market longer.

Can sellers still raise prices?

Yes, but sales prices and listing prices now tell different stories. The median sales price rose 0.4% from a year earlier to $416,700, an all-time October high based on data going back to 1999. NAR also reported that home prices have risen on an annual basis every month since July 2023.

Realtor.com recorded a different signal: the median listing price fell 2.2% year over year to $415,000, and about 20.5% of listings received an initial price cut.

Mortgage costs now set the pace: a 7.4% peak, a 5.1-month supply and a 29% first-time-buyer share tell the same story of constrained demand. At 5.1 months of supply, buyers have more potential leverage; sellers face longer waits.