Veteran economist Mohamed A. El-Erian warned that higher interest rates “will increasingly pressure rate-sensitive sectors like housing” as U.S. existing-home sales fell 5.5% in October to their lowest level in 16 years.
In a Thursday post on X, El-Erian linked the housing pressure to a significant increase in AI-related borrowing, arguing that bond-market conditions were not making room for the additional borrowing. He also said inflation worries were amplifying the pressure beyond the U.S.
Existing-Home Sales Hit 16-Year Low
Existing-home sales fell 5.5% month over month in October to a seasonally adjusted annual rate of 3.75 million, the lowest level since August 2010, according to National Association of Realtors data.
Despite the decline in transactions, the median existing-home price rose 0.4% from a year earlier to $416,700, marking the 40th consecutive month of annual price increases. Inventory increased 1.3% from September to 1.59 million homes, equivalent to a 5.1-month supply.
The average 30-year fixed mortgage rate was 7.33% in October, compared with 6.25% a year earlier, the data showed.
Long Warns of Housing Affordability Strain
Heather Long, chief economist at Navy Federal Credit Union, described the U.S. housing market as being in a “dramatic slump” in a separate post on X.
She said home sales and homebuilding were drying up as mortgage rates remained above 7%, while home prices were about 50% higher than in 2020. “There’s unlikely to be much relief anytime soon,” Long wrote, calling housing affordability a major pain point for younger Americans and pointing to housing-related protests in Spain as a warning for the U.S.
Schiff Warns of Housing Crash as Homeowners Tap Equity
Economist Peter Schiff warned that falling home sales could precede a major housing correction, writing, “Today’s low sales come before the crash.” However, the October data showed distressed sales accounted for just 2% of transactions, while home prices continued to rise.
Meanwhile, U.S. homeowners’ home equity line of credit (HELOC) balances increased by $23 billion in the third quarter to $481 billion, marking the largest quarterly increase since 2005, according to the Federal Reserve Bank of New York.
The increase in HELOC borrowing comes as homeowners are reluctant to replace existing low-rate mortgages with new loans at higher rates. Financial planner Douglas Boneparth said HELOCs allow homeowners to borrow against their equity without giving up their existing low mortgage rates.
J.P. Morgan analysts have described the U.S. housing market as effectively frozen, noting that about 75% of borrowers had mortgage rates below 5%, while 55% had rates below 4%.
Disclaimer: This content was produced with the help of AI tools and was reviewed and published by Benzinga editors.
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