Existing home sales hit a 14-year low as homebuyers hold out for lower rates that may not come

• Existing home sales dropped 1% last month to the lowest level since October 2010.
• Homebuyers stayed on the sideline in anticipation of lower mortgage rates.

US existing-home sales dropped to a nearly 14-year low in September as prospective homebuyers held back in anticipation of lower mortgage rates.

Last month's sales dropped 1% to an annual rate of 3.84 million, the National Association of Realtors disclosed on Wednesday. That marked the lowest level since October 2010, and came in below projected estimates of 3.88 million, according to economists surveyed by Bloomberg.

The decline to a multi-year low shows that buyers have opted to wait for home borrowing costs to descend, as typically happens when the Federal Reserve eases interest rates.

It was widely assumed that US bond yields — and as well as mortgage rates, which are correlated with them — would fall after the Fed's rate cuts. Instead the opposite has happened. Both are up sharply since Sept. 18.

According to Mortgage News Daily, the average 30-year fixed mortgage rate has climbed 70 basis points since then, to 6.85% from 6.15%.

This is because stronger-than-expected economic data has forced investors to adjust their outlooks for how much the Fed is going to cut rates going forward. Since monetary easing generally leads to lower yields, the mounting prospect that the Fed will pump the brakes on further cuts is instead pushing yields higher.

As for those prospective homebuyers are holding out for lower mortgage rates — if this trend continues, they will be waiting for a while.

On a broader basis, elevated mortgage rates have been among several factors squeezing housing affordability. The high-rate environment has meant fewer sellers, draining home inventory and keeping prices high.

According to Redfin, home prices grew 0.5% month-to-month in September, marking the fastest pace since April.

"There are around 20% fewer homes on the market today than there were five years ago, mainly because so many homeowners locked in a low mortgage rate during the pandemic," Redfin senior economist Sheharyar Bokhari said in the report. "With mortgage rates back above 6.5% this month — and unlikely to drop below 6% this year —home prices will likely continue their consistent climb until more inventory comes onto the market in the spring."