Wells Fargo Economic Report: November 2022

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In mid-October, mortgage rates hit their highest level in more than 20 years, according to Freddie Mac’s weekly survey. The 30-year fixed-rate mortgage averaged 6.94% during the week ending October 20, up from 3.11% during the last week of 2021. With the mortgage rate more than doubling over the past 10 months, monthly payments have soared – on a $400,000 loan amount at 30 years, for example, the monthly principal and interest payment at the end of 2021 would have been $1,710, but now is $2,645.

In the face of these higher rates, the housing boom following the onset of the pandemic is clearly unwinding. September marked the eighth consecutive month of declining existing home sales, with the sales rate falling 27.4% from January 2022. The seasonally adjusted rate of sales in September was 4.71 million units, the slowest pace since September 2012, excluding the first months of the pandemic. By comparison, sales totaled 6.12 million units in 2021, and during 2015-19 the sales pace was 5.38 million units.

Meanwhile, housing starts fell 8.1% in September to an annual rate of 1.44 million units, its slowest pace since February 2021. The decline partially offsets August’s 13.7% surge. Since December 2021, housing starts are down 18.6%. The decline over 2022 is more pronounced for single-family starts, which are down 26.4% from December. In September, single-family starts slipped 4.7% to 892,000 units, its slowest rate since the onset of the pandemic. Nevertheless, single-family starts remain above the average annual pace of 821,200 units set during 2015-19.

New home sales followed suit in September, recording a 10.9% drop to an annual rate of 603,000 units. That’s the seventh decline in the last nine months, and sales are down 14.4% year-to-date compared to the first nine months of 2021. The inventory of new homes for sale on the market reached 462,000 units in September, its highest level since early 2008. During 2015-19, the number of new homes on the market averaged 275,700 units.

 

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