Sales of previously owned U.S. homes increased in October, marking the first annual rise in over three years. The boost in sales was driven by lower interest rates and a greater number of properties available on the market. According to the National Association of Realtors, existing home sales rose by 3.4% in October compared to September, reaching a seasonally adjusted annual rate of 3.96 million, which is in line with the annual pace recorded in July.

Sales of existing homes rose by 2.9% compared to October of the previous year, marking the first year-over-year increase since July 2021. The latest sales figures exceeded the 3.93 million pace that economists had anticipated, according to FactSet. Home prices also saw an annual increase for the 16th month in a row, with the national median sales price rising by 4% to USD 407,200. Lawrence Yun, the chief economist of the National Association of Realtors (NAR), suggested that the worst of the downturn in home sales may be over, with growing inventory contributing to more transactions.

However, with only two months remaining in the year, existing home sales are on pace to record the lowest annual sales since 1995, according to Yun. The U.S. housing market has been in a slump since 2022, when mortgage rates began rising from the record lows seen during the pandemic. Last year, existing home sales plummeted to a nearly 30-year low as the average rate on a 30-year mortgage soared to nearly 8%, the highest level in 23 years, according to mortgage buyer Freddie Mac.

In September, the average rate on a 30-year mortgage dropped to a two-year low of 6.08%, likely influencing many of the purchase contracts for homes that officially sold in October. However, the rate has been steadily increasing since then, reaching 6.84% this week. Economists anticipate that mortgage rates will remain volatile throughout the year but expect them to stabilize around 6% in 2025. This may not be enticing enough for current homeowners who purchased or refinanced at much lower rates to sell. According to Realtor.com, over 80% of homeowners with a mortgage have a rate below 6%.

A larger inventory of homes on the market amid slower sales this year has been a positive development for homebuyers. According to the National Association of Realtors (NAR), there were 1.37 million unsold homes by the end of October, a 0.7% increase from September and a 19.1% rise from October of the previous year. This represents a 4.2-month supply at the current sales pace, slightly down from 4.3 months in September but up from 3.6 months in October of last year. A balanced market typically sees a 5- to 6-month supply. An additional factor contributing to the increase in inventory is that homes are taking longer to sell compared to a year ago.

Last month, homes typically stayed on the market for 29 days before being sold, an increase from 28 days in September and 23 days in October of the previous year. Although the number of homes for sale has risen this year, the overall inventory in the housing market remains significantly below pre-pandemic levels. For instance, there were approximately 1.8 million unsold homes available in October 2019. Yun stated that a 30% increase in inventory is still needed to return to pre-COVID conditions.

Limited inventory, particularly in the more affordable price ranges, contributes to rising home prices. This is one of the reasons why first-time homebuyers, who lack home equity for their down payments, continue to face challenges in purchasing a home. They represented only 27% of all homes sold last month, which is an increase from 26% in September but a decrease from 28% in October of the previous year. Historically, first-time buyers have accounted for 40% of sales. Meanwhile, cash buyers, who can bypass mortgage rates, made up 27% of sales last month, down from 29% the previous year.

While existing homeowners have managed to navigate rising mortgage rates and home prices by leveraging their significant home equity, first-time buyers have had to save for longer down payments, often delaying their home purchases for several years. As a result, the age of homebuyers is increasing. The median age of homebuyers between July 2023 and June 2024 reached 56, the highest recorded since 1981, according to the National Association of Realtors. The median age for first-time buyers also rose to 38 during the same period. Historically, the median age of all U.S. homebuyers has averaged around 44.

Despite an increase in home sales and inventory, the U.S. housing market continues to face significant challenges. Rising mortgage rates, which have surpassed 6%, are keeping many potential sellers from listing their properties, particularly those who locked in lower rates in the past. This has led to limited options for buyers, especially first-time homebuyers who struggle with high prices and larger down payments. Although the market shows some signs of stabilization, with rising home inventory and slowing price increases, the long-term effects of high rates and low inventory may continue to limit overall sales activity in the near future.