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Home sales are dropping, in some cases dramatically. This could be a sign that the housing market is finally cooling off. NPR's Camila Domonoske reports.
CAMILA DOMONOSKE, BYLINE: The Commerce Department says sales of new homes dropped more than 5 percent in September compared to the previous month. That's part of a larger trend. Sales of new and existing homes have been slumping for four straight months. How much has the market cooled? Commerce figures show that new home sales are down more than 13 percent compared to last fall. Back then, the housing market was hot. Home sales and home prices were both rising.
AARON TERRAZAS: Millennials, all those young adults who had delayed buying their first house, starting families during the recession years, they were out in the market, buying their first house as they were driving kind of a lot of demand.
DOMONOSKE: Aaron Terrazas is a senior economist at Zillow. Just a year ago, interest rates were averaging under 4 percent. Houses were selling quickly, and home values were rocketing up. But now it's a very different picture. The housing market is weakening.
LAWRENCE YUN: Home sales have been falling. Home prices are still appreciating, but at a slower pace.
DOMONOSKE: Lawrence Yun is the chief economist for the National Association of Realtors. He says this is not a mysterious situation. The Fed has been raising interest rates after a long stretch of low rates as the country recovered from the Great Recession. That means rates for a 30-year fixed-rate mortgage are now closing in on 5 percent for the first time in years.
That makes it more expensive to buy a house, so you would expect to see a drop in sales. And that's not the only reason sales could be slowing. That sharp increase in home values, it has consequences. Yun says, in the booming housing market, prices were rising too much, too fast.
YUN: Home prices gained essentially 50 percent over the past six years, while people's income growth barely rose above 10 percent.
DOMONOSKE: That mismatch was pricing new buyers out of the market. With that in mind, he says, a slowdown in sales is not a bad thing if it leads to more sustainable price increases. And for now, home prices are stabilizing. As for what's next, the Fed is expected to raise interest rates again. And if the economy remains strong and jobs and wages continue to rise, Yun says the housing market could be fine with that. Camila Domonoske, NPR News.
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