Slowing real estate market overshadows Joe Biden’s optimistic economic forecast

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Slowing real estate market overshadows Joe Biden's optimistic economic forecast
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High inflation and rising interest rates are creating one of the worst housing markets since the 2008 crash, presenting another obstacle to President Biden’s hoped-for recovery in a sector that accounts for nearly a fifth of the ‘economy.

Used home sales fell for the ninth straight month in October, down 5.9% from the previous month, the National Association of Realtors said Friday.

Existing home sales were down 28.4% from October 2021, the slowest pace since 2011 except for the start of the pandemic. The streak of declines is the longest on record, forcing buyers and sellers on the sidelines amid higher prices and fewer available homes.

The dramatic slowdown in home sales comes as the Federal Reserve raises interest rates to curb inflation that hit a 41-year high last June. Mortgage rates on a 30-year fixed loan have more than doubled this year to 7%, although rates fell last week to 6.6%.

Despite the slowdown, home prices continued to climb last month. The national median home price rose 6.6% in October from a year ago, to $379,100. That’s down 8% from its June peak, but still 40% above the pre-pandemic level.

“Looking at October 2019, pre-COVID, and the latest figure, house prices are up 40%, and that’s really hurting affordability,” said NAR chief economist Lawrence Yun. “We know that most families’ incomes, most households’ incomes, have not increased by 40 percent.”

Megan Rosendale, a Maryland realtor with Rosendale Realty, said the market has cooled, but she thinks the result is a better balance between buyers and sellers.

“There’s less competition – we’re getting people out who see more than 10 offers on a house, and now you can actually bargain a bit,” she said. “Everyone meets a bit in the middle, and that’s good for both parties.”

The recent decline in mortgage rates is encouraging, she said.

“This will keep the price of our homes at a fair price. Hopefully in the next two months we will see everything fade away and get back to normal. »

But the Fed should continue to raise rates.

Inflation remained elevated last month, the labor market remained tight and consumers maintained a healthy pace of spending, all indicators that the central bank will continue to rein in the economy.

The Fed has raised its benchmark interest rate six times this year, and another rate hike is expected at its December 14 meeting. Mortgage rates are generally linked to the movements of the Fed.

The housing downturn is another sign of the difficulty Mr. Biden faces in getting the economy back on track. At a White House forum on Friday with business and labor leaders, the president noted that the economy grew in the third quarter at a rate of 2.6%, an improvement from the first half of the year.

“Our approach, I believe, is working,” the president said. “Grocery inflation is easing slightly, prices for clothing, TV and appliances are falling and we’re heading into the holidays.”

Mr Biden predicted “setbacks along the way” before inflation eventually fell to the Fed’s 2% target rate. “So far we are in good shape,” he insisted.

Meanwhile, the leading economic index for the United States fell 0.8% in October, the Conference Board reported on Friday – the index’s eighth consecutive decline.

The long decline indicates that “the economy may be in recession,” said Ataman Ozyildirim, senior director of economic research at The Conference Board.

He said the data predicts a recession will likely start towards the end of this year and last until mid-2023.

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