US home sales plunge to lowest in nearly three decades amid rising interest rates

The US housing market witnessed its worst year since 1995 as home sales plummeted to a historic low of 4.09 million, according to data released by the National Association of Realtors (NAR). The slump is attributed to a significant surge in interest rates, dissuading buyers and prompting potential sellers with lower rates to hold off.

Tight supply conditions exacerbated the situation, propelling prices to a new record. The median sale price in 2023 rose by 1% to reach $389,800 (£307,625), marking a 40% increase since 2019. The NAR remains cautiously optimistic about the market's prospects in 2024 but issued a warning about persistent affordability challenges.

Economist Lawrence Yun from the NAR expressed concern over the unsustainability of recent price hikes and stressed the necessity of boosting housing supply to address the growing disparity between homeowners and renters. Yun cautioned that if current price trends persist, the nation could accelerate into a dichotomy of haves and have-nots.

The abrupt slowdown in the US housing market dates back to 2022 when the Federal Reserve initiated interest rate hikes to counter inflation. Last year saw mortgage rates, typically fixed for a 30-year period, surpass 7% for the first time in decades. This shift marked the end of a pandemic-induced buying frenzy, fueled by the central bank's rate cuts.

Despite recent declines in mortgage rates to 6.6%, the lowest since May, industry experts remain cautious. Analysts, including Nancy Vanden Houten from Oxford Economics, anticipate that rates will likely hover above 6%, insufficient to entice a significant number of sellers back into the market. The prevailing scarcity of existing homes for sale is expected to sustain positive home price growth in the coming year, further compounding affordability challenges for prospective buyers.

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