United States existing home sales slumped 5.5 percent in October to a seasonally adjusted annual rate of 3.75 million units, the lowest since 2010 and below expectations of 3.89 million units. The drop shows how far high borrowing costs have cooled the housing market, with the 10 year Treasury yield above 5 percent and mortgage rates following it higher.
Why it matters
The sales figures landed alongside other signs of a cooling economy. The number of Americans filing initial jobless claims rose by 9,000 last week to 200,000, compared with expectations of 194,000. Together, the two reports describe an economy that is still growing but with households pulling back on the biggest purchases, and with the Federal Reserve watching every number.
The housing slump matters for the Federal Reserve debate. The October Producer Price Index is due at 8:30 a.m. Eastern Time on Friday, with economists expecting a rise of 0.4 percent from September and 6.6 percent from a year earlier. A hot reading would strengthen the case for a December rate hike that is already fully priced, and higher rates would squeeze housing further.
What happens next
The political stakes are rising with the rates. Democrats seized control of both chambers of Congress in the November 3 elections, and housing affordability was one of the issues that carried them to victory. A housing market frozen by high rates will be one of the first tests of the new majority when it takes office in January.
For now, housing is a drag on growth rather than a driver of it. If the producer price data comes in hot on Friday, the Federal Reserve will have more reason to hike in December, and buyers will have to wait longer for relief. If it cools, the market may finally get a reason to move.
The Federal Reserve meeting on December 8 and 9 will decide the next move, and the producer price data on Friday feeds directly into that debate. A 25 basis point hike is fully priced, with a small chance of 50, after Fed Governor Christopher Waller said a core reading of 0.3 percent would prompt him to consider a half point move.
