American home sales hit a 30-year low, delivering bad news for News Corp (ASX:NWS) and its 61% owned Australian US property listings REA Group (ASX:REA). Together, they control Move, a larger US counterpart to REA, with News owning 80% and REA owning 20%. Both companies are bearing the brunt of this severe downturn, which surpasses anything seen in decades.
In the year leading up to June, Move experienced a 15% drop in revenues, equivalent to $US110 million. This decline was followed by a 16% decrease in the three months leading up to September, coinciding with News Corp’s first quarter for 2023-24.
The sharp rise in US rates by the Fed, coupled with the subsequent increase in mortgage rates, rising property prices, and a persistent shortage of homes on the market, have collectively dampened activity throughout 2023.
The National Association of Realtors reported that existing US home sales in the previous year totaled 4.09 million, marking an 18.7% decline from 2022, almost matching the 18% drop witnessed in 2022 when mortgage rates began their ascent, eventually more than doubling by year-end.
2023, in fact, recorded the weakest year for home sales since 1995 and the largest annual decline since 2007 when the Global Financial Crisis triggered a substantial housing market slump.
By late October in 2023, average US mortgage rates for a 30-year mortgage reached 7.79%, the highest level since late 2000.
However, there is optimism from the real estate agents’ group for 2024. Lawrence Yun, the NAR’s chief economist, stated, “The latest month’s sales appear to be the bottom before inevitably turning higher in the new year. Mortgage rates are significantly lower compared to just two months ago, and more inventory is expected to enter the market in the upcoming months.”
US mortgage rates have been on a downward trend since November, mirroring the drop in the 10-year Treasury yield, which lenders use as a reference for loan pricing. The yield has largely decreased due to hopes that inflation has moderated enough for the Federal Reserve to consider interest rate cuts in the current year, standing at 6.6% last week. Two years ago, the average rate was 3.56%, driven by the influx of funds from the Fed and governments to mitigate the impact of the pandemic.
Despite the decline in mortgage rates, home sales in December fell after a November increase. Existing home sales dropped by 1% from November to a seasonally adjusted annual rate of 3.78 million, marking the slowest sales pace since August 2010, according to the NAR. Sales also fell 6.2% from the previous year, falling short of the approximately 3.83 million expected by economists, as reported by the US financial data group, FactSet.