Many homebuyers abandoned the resale housing market last month, as elevated rates and rising home prices crushed affordability.
Sales of previously owned homes dropped 4.1% in October from the month before to an annualized rate of 3.79 million, the National Association of Realtors (NAR) reported on Tuesday. That was 14.6% lower than a year ago and below the 3.90 million units predicted by economists polled by Bloomberg.
The median home price jumped 3.4% year over year, marking the fourth straight month of annual gains and the largest increase since November 2022. The median price of $391,800 was the highest for the month of October.
"Prospective homebuyers experienced another difficult month due to the persistent lack of housing inventory and the highest mortgage rates in a generation," said NAR chief economist Lawrence Yun in a press statement. "Multiple offers, however, are still occurring, especially on starter and mid-priced homes."
Read more: How to buy a house in 2023
Still, the NAR anticipates that existing home sales will climb 15% in 2024 after declining 18% this year, with expectations that mortgage rates will fall to between 6% and 7% by the spring selling season. Other experts expect the worst may soon be over.
"Existing home sales are likely to underwhelm again for October. How low can they go?" Mark Fleming, chief economist at First American, told Yahoo Finance ahead of the release. "Probably not much lower as more recently mortgage rates have fallen from the high point of 8% and mortgage applications are on the rise again."
'Multiple-offer situations'
But for now, the muted activity is pervasive, while pricing remains up — thanks to persistent competition. All four regions of the country recorded year-over-year declines in the resale activity in October, the NAR found.
In the West, sales declined 1.4% from a month ago to an annualized rate of 690,000 in October, down 14.8% from a year prior. The median price in the West was $602,200, up 2.3% from last year at this time.
Sales in the South fell 7.1% from September to an annual rate of 1.69 million in October, down 14.6% from a year ago. The median price in the South was $357,700, an increase of 3.5% from October 2022.
In the Midwest, home sales were unchanged from one month ago at an annual rate of 930,000 in October, but were still 13.9% lower from one year ago. The median price in the Midwest was $285,100, up 4.2% annually.
Sales in the Northeast dropped 4% from the annual rate of 480,000 in October, down 15.8% compared to last October. The median price in the Northeast was $439,200, up 7.5% from a year earlier.
"In fact, 28% of homes that were sold in the month of October sold above list price. Interestingly, one year ago when mortgage rates were meaningfully lower 24% of the homes sold above list price," Yun said in a press call Tuesday. "It shows somewhat [more] multiple-offer situations compared to one year ago, despite the higher mortgage rate condition."
'Buyers are likely caught in the tug of war'
It’s no secret that rates have been a thorn in buyers' sides.
That was evident in October, when the 30-year fixed rate mortgage surged by nearly a full point from the month prior to 7.76%, hitting its highest point since September 2000, according to Freddie Mac.
Read more: Mortgage rates at 20-year high: Is 2023 a good time to buy a house?
"Housing affordability continues to be a major headwind," Danielle Hale, Realtor.com chief economist, said in a statement. "And many potential buyers are likely caught in the tug of war between holding out and waiting for better pricing and mortgage rate conditions or rushing to beat potentially worse conditions."
High rates have created a double-whammy for buyers: increasing their monthly mortgage payment and further discouraging homeowners to sell. The vast majority of homeowners with a mortgage have a rate below 5% that they would lose if they sold their house.
That lack of inventory has caused prices to go up even though rates have also increased.
"The factors limiting sales are the same two important factors, which is mortgage rates can drain affordability for the buyers, but those who can handle affordability, inventory is simply not there," said NAR chief economist Lawrence Yun in a press call Tuesday. "So [it’s a] strange story. Lack of inventory along with higher mortgage rates are really hindering home sales."
Read more: 5 strategies to get the lowest mortgage rates in 2023
'An unusual gain' in inventory
Still, there are signs that "lock-in" effect is waning.
The share of homes for sale at the end of October was 1.15 million units, up 1.8% compared to a month ago, NAR data showed. Still, that's the lowest inventory count going back to 1999. There was a 3.6 month supply of unsold inventory at the current sales pace, up from 3.4 months in September. At least six months of inventory is considered a healthy market.
But early November data from real estate analytics firm Altos Research has shown an unusual uptick in new listings. Just under 570,000 single-family homes sit unsold on the market, up a half-percent from last week.
"It’s not a lot, but normally in November inventory is declining each week. So this is an unseasonal gain," Mike Simonsen, founder and president of Altos Research, wrote in a blog on Monday. Still, "there are fewer sellers now each week than normal years. There is no flood of sellers. We’re not anywhere close to a market with a glut of homes for sale."
Gabriella is a personal finance and housing reporter at Yahoo Finance. Follow her on Twitter @__gabriellacruz.