US home sales hit a 16-year low as owners borrow against homes rather than sell

Sales of previously owned homes in the United States have dropped to their slowest pace in sixteen years, and the reason sits in millions of filing cabinets: mortgage paperwork carrying an interest rate nobody wants to give up. Instead of selling, owners are borrowing against the houses they refuse to leave.

That standoff reaches well beyond the realtor’s office. A first-time buyer now faces borrowing costs close to the highest of this century, an owner with a cheap loan has every reason to stay put, and the Federal Reserve, which would normally ease that pressure, is preparing to tighten it again.

Sales collapse while prices barely move

The National Association of Realtors said existing-home sales fell to an annual pace of 3.75 million in October, down 5.5% from September and 8.8% from a year earlier, the weakest reading since August 2010. Sales slipped in the Midwest, South and West and held steady in the Northeast. Prices hardly flinched: the median sale price came in at $416,700, slightly above its level a year ago.

The trade group’s chief economist, Lawrence Yun, blamed mortgage rates that have “climbed to their highest levels since 2000, aside from a single month in 2023.” The average 30-year fixed rate hovers around 7.2%, and it jumped to 7.30% in a single day after this week’s hotter-than-expected inflation report, according to Mortgage News Daily. During the pandemic, the same loan cost just over 3%.

A cheap old loan is worth more than a move

Nearly half of outstanding US mortgages, 49.1%, carried rates of 4% or lower in the second quarter, according to a Realtor.com analysis of federal data. Trading that loan for a new one above 7% can add hundreds of dollars to a monthly payment, so owners who need cash open a home equity line of credit instead. Balances on those lines rose by $23 billion in the third quarter, the largest increase since 2005, to $481 billion, the Federal Reserve Bank of New York reported.

Lenders feel the freeze from both ends. Applications to refinance were 57% below their level a year earlier and purchase applications were down 18%, according to the Mortgage Bankers Association, even after a brief dip in rates pulled some buyers back.

The equity cushion runs on a variable rate

Yun offers the comfortable reading. The country’s 88 million homeowners are largely in a sound financial position, he said, and a fall in rates could release sizable pent-up demand. Danielle Hale, chief economist at Realtor.com, said she does not think sales will stay this low. Both views lean on cheaper money, and traders are betting on the opposite. Home equity lines usually carry variable rates, averaging 7.49% in early November according to Bankrate, so each Fed hike lands on the very owners who chose a credit line over a sale. Balances remain far below their 2009 peak of about $714 billion, yet they have now risen for 18 quarters in a row.

The figures describe an American problem. Most US mortgages are fixed for three decades, which is why owners there freeze rather than sell under pressure. In Britain, where the Bank of England raised its rate to 4% this month and fixed deals typically run for a few years, higher rates reach household budgets faster.

The Fed meets before the next sales count

Consumer prices rose 0.4% in October against the 0.3% economists expected, and traders now treat a December hike as certain: about 88% expect a quarter-point move and the rest half a point, according to CME’s FedWatch tool. The Fed’s benchmark range sits at 3.75% to 4% after September’s increase, its first since 2023. Policymakers hold their final meeting of the year on December 8, and the Realtors publish November sales on December 9.

A hike would make the new mortgage dearer for the buyer, and the old house dearer for the owner who borrowed against it to stay.

Tags: Federal Reserve, interest rates, mortgage rates, home equity, National Association of Realtors, US housing market