The haunted housing market

Here's a scary truth: The housing market is haunted. Home sales are anemic, yet prices are still high, and homebuilders say it's hard getting people out to even look at places.

Why it matters: For a long time, the residential real estate market was a crucial economic engine in the U.S., and homeownership the backbone of the American dream and wealth building.

• Now, not so much.

Where it stands: The average rate on the 30-year mortgage is 7.24%, up from just under 6% at the start of the Iran war — that put the kibosh on what had been a tentative thaw in the frozen sector.

• With rates that high, a lot of folks — particularly younger first-time buyers — can't afford the monthly payments. In September, 14.5% of pending home sales fell out of contract, per Redfin, the highest share outside the early pandemic.

• Traffic of prospective buyers to new homes fell to its lowest level since 2012 this month, according to a survey of homebuilders from the National Association of Home Builders.

The big picture: This is a situation years in the making. After the financial crisis in 2008, the Federal Reserve kept interest rates ultra-low, which meant low mortgage rates for buyers.

• Perhaps, perversely, that helped drive up home prices — you can afford to pay more when your mortgage rate is low.
• Home prices exploded, culminating in around a 40% increase during the 2021 and 2022 buying frenzy.

State of play: But now, home prices are still high — they haven't adjusted down as mortgage rates have gone back up.

Catch up quick: The previous era's low mortgage rates — an average of 4.15% from 2008-2021 — were an anomaly.

• "Consequently, there is little reason to believe that mortgage rates will fall much below 7.0% in the months or even years ahead, in the absence of a recession," David Kelly, chief global strategist at JPMorgan Asset Management, wrote in a note titled, yes, "Haunted Housing."

Zoom in: The market is "haunted by the legacy of too-easy monetary policy for well over a decade, which allowed prices to vault higher in the post-pandemic boom," he wrote.

• Tariffs and immigration policies are also taking a toll, Kelly said. The former is driving up prices for materials used to build homes, and the latter is driving up labor costs to build.

Zoom out: The situation is increasingly putting homeownership out of reach for young adults — the homeownership rate for that group, which had bounced back from its post-pandemic low, has fallen back some in recent years.

• Kelly says this is the scariest chart of all:

The bottom line: The housing market is more trick than treat lately.