“Existing home sales are right now probably at the lowest since the GFC,” she said in a recent interview on CNBC, referring to the Great Financial Crisis. She added that she sees existing home sales remaining at “extremely depressed levels” through to 2025. In other words, housing activity, at least on the existing-homes side of the market, will largely remain frozen as homeowners hold onto their homes amid potentially higher-for-longer mortgage rates. 

The data doesn’t lie

The latest numbers released by the National Association of Realtors back up this poisonous critique. Data released on Tuesday morning show that existing home sales receded 4.1% in October compared to the previous month, and 14.6% compared to the year prior, to a seasonally adjusted annual rate of 3.79 million. 

That’s the lowest pace since 2010 (in line with September’s existing home sales), when the housing market was reeling from the aftermath of the GFC. Nevertheless, there’s really only one thing that can change that, Zelman says: mortgage rates. 

We need a much “further decline in rates to reignite the existing home market,” she said, pointing to the lock-in effect that’s kept homeowners from selling their homes in fear of losing their below-market mortgage rate for one that’s potentially pushing 8%, or in the very least above 7%. By her estimate, more than 80% of homeowners have a mortgage rate below 5%, and almost half below 4%. Other estimates vary, but Goldman Sachs recently suggested that 98% of borrowers have a below-market rate—and that was before rates reached just above 8%. Not to mention that nearly 40% of Americans own their home outright as of last year, which is an all-time high per Bloomberg—so you can understand why supply is tight, and why existing home sales are at a 13-year low. 

Whither mortgage rates?

Whether we’ll see mortgage rates fall much further, though, is unclear, with analysts and investment banks’ differing forecasts. Some suggest mortgage rates will stay higher for longer, but they have fallen for weeks after hitting 8% in the wake of cooler-than-expected inflation reports. And several economists even expect the Federal Reserve to cut interest rates in the coming months, which would likely push the 30-year fixed mortgage rate lower, but it’s unlikely we’ll ever return to pandemic-lows—which is partly why homebuilders, and the new home construction market, has outperformed the existing home market. 

“Builders have had more resilient sales, and I think part of that is they’re really offering great value to the consumer by giving mortgage rate buydowns,” Zelman said. “They’re offering incentives and they’ve got product, and while they’re providing that incentive and that could impact margins, they have product where [there is] incremental demand [and] there’s not a lot of existing inventory.” 

It’s not clear when the shortage of homes will ever work itself out, particularly as the lock-in effect continues to constrain supply. That being said, housing will continue to be largely unaffordable. The latest numbers from NAR showed that there’s just over a three month supply of homes, and the median existing home sales price climbed 3.4% from the previous year, making it the fourth consecutive month of year-over-year price increases. 

“With respect to affordability and providing more affordable housing, really without any government support, developers just can’t pencil returns to provide enough housing that’s needed,” Zelman said. “The multifamily market right now is seeing deceleration in rents because of so much supply that’s coming to market,” and that’ll provide some relief. 

It’s a tough time right now, she concluded, and such a sharp contrast from the Pandemic Housing Boom.