Thanks to a considerable downward revision of the magical NAR numbers, the existing home sales MoM 'beat' expectations for September but the two-month average shows the largest drop in sales since June 2012. From the "cylical peak" in July, of course extrapolated by any and all apologists as confirming the voyage to the moon, it seems, just as we noted, that "affordability" - long shunned by the bulls (because, like you know, interest rates are still low compare to the 1970s...) - has collapsed to five-year lows; worse, in fact, than we expected [3]. With 33% of all transactions cash, it is little surprise that affordability has fallen to a five-year low as home price increases easily outpaced income growth.
[4]
From the NAR statement [5]:
Affordability has fallen to a five-year low as home price increases easily outpaced income growth
...
Expected rising mortgage interest rates will further lower affordability in upcoming months. Next month we may see some delays associated with the government shutdown.”
Just as we warned in June: [6]
It also means that a buyer who could previously afford a $506K house with a $2,000 monthly budget at an interest rate of 2.5% will be able to afford only $316K if and when the average 30 Year fixed hits 6.5%: a 40% drop in affordability based on just a 4% increase in interest rates!