Home sales fell for the seventh straight month in August as higher mortgage rates and stubbornly high prices drove would-be buyers out of the market.
Sales of existing homes — which include single-family homes, townhomes, condos and co-ops — fell 19.9% from a year ago and 0.4% from July, according to a report from the National Association of Realtors .
Sales in August were at their lowest level since May 2020, an anomaly since that was early in the pandemic lockdown. On top of that, last month’s sales were the lowest since November 2015.
Sales declined year-over-year across all price categories, with lower-end sales declining more sharply, with the largest declines in all regions in the West, where affordability challenges were greatest.
The report showed that house prices continued to climb this month, albeit at the slowest year-on-year increase since June 2020. The median home price in August was $389,500, up 7.7% year over year. That was down from a record $413,800 in June. The price increase marks more than a decade of monthly year-over-year gains.
“The real estate sector is the most sensitive and most directly affected by changes in Fed rate policy,” said Lawrence Yun, NAR’s chief economist. “Weak home sales reflect rising mortgage rates this year.”
The average rate on a 30-year fixed-rate mortgage hit 6% last week, the highest level since 2008 and about double what it was a year ago.
Assuming stable mortgage rates and only a small drop in sales from July, the market slowdown could stabilise, Yun said.
“But if mortgage rates go higher, all bets are off,” Yun said. “Usually homeowners who may have moved – because of a new job or another child or in a different school zone – may stay in their current home because they like the low rates and six months they’ve locked in for the past two years. ”
The “stand still” effect has kept the inventory of homes for sale tight. While it appears that falling sales mean there is an oversupply of homes on the market, fewer people are bringing homes to the market. New listings are fast, with just 16 days from listing to signing.
Inventory of homes for sale at the end of August fell 1.5% from July and was unchanged from last year at 1,280,000 units. Homes are still selling fast. At the current sales pace, it would take 3.2 months to sell all inventory, the same as in July and up from 2.6 months a year ago due to lower sales. A balanced market is closer to a four- to five-month supply, Yun said.
“Inventory will remain tight in the coming months and even years, increasing the need for more new home construction to increase supply,” Yun said.
The market typically sees a seasonal drop in summer house prices of around 1% per month, but this year the monthly declines were even bigger – 3.6% in July from June and 2.4% in August from June, although national dwelling prices remained high a year ago.
Some local markets may see year-on-year declines, Yun said.
But as home financing costs have risen, homebuyers have had to look for much lower-priced homes to stay affordable.
If you bought a $300,000 home last year at 3 percent, your monthly payment would be $1,265, Yun said. To keep the same monthly payments, they have to look at homes that are 30% less expensive today.
“It’s not attractive to many buyers,” he said.
First-time buyers accounted for 29% of sales in August. This is the same situation as last month and a year ago.
“The number of first-time buyers has not increased,” Yun said. “The share should be above 30 per cent or closer to 40 per cent. But first home buyers are really struggling given the current affordability challenges.”