Home sales fell for the seventh straight month in August as rising mortgage rates and stubbornly high prices pushed potential buyers out of the market.
Sales of existing homes — which include single-family homes, townhouses, condominiums and co-ops — were down 19.9% from a year ago and 0.4% from July, according to a report by the National Association of Realtors.
Sales in August were at their lowest level since May 2020, which was an anomaly as it was at the start of the pandemic lockdown. That aside, last month’s sales were the weakest since November 2015.
A year-over-year decline in sales was seen across all price categories, with steeper declines at the lower end, and across all regions, with the steepest decline in the West where affordability issues are the most important.
Home prices continued to climb during the month, although this was the smallest year-over-year increase since June 2020. The median home price was $389,500 in August, up 7.7% from a year ago, according to the report. That’s down from a record high of $413,800 in June. The price increase marks more than a decade of year-over-year monthly gains.
“The housing sector is the most sensitive and suffers the most immediate impacts from changes in Federal Reserve interest rate policy,” said Lawrence Yun, chief economist at NAR. “Weak home sales reflect higher mortgage rates this year.”
The average rate for a 30-year fixed-rate mortgage hit 6% last week, its highest level since 2008 and about double what it was a year ago.
With sales falling only slightly from July, the market slowdown may stabilize, Yun said, assuming mortgage rates stabilize.
“But all bets are off if mortgage rates go up,” Yun said. “Homeowners who have typically moved – due to a new job or another child or to be in a different school district – may stay in their current home because they like their low interest rates that they have already blocked over the past two years. and a half years.
The “stay put” effect keeps the inventory of homes for sale tight. While it might seem like a drop in sales would mean a glut of homes on the market, fewer people are putting their homes on the market. And new registrations go very quickly, going from registration to contract in 16 days.
The inventory of homes for sale at the end of August was down 1.5% from July and unchanged from a year earlier at 1,280,000 units. And houses always sell quickly. At the current rate of sales, it would take 3.2 months to sell all that inventory, the same as July and up from 2.6 months a year ago, as there are fewer sales. A balanced market, Yun said, is closer to a 4-5 month supply.
“Inventory will remain tight in the coming months and even over the next two years, increasing the need for new home construction to boost supply,” Yun said.
The market typically sees a seasonal decline of around 1% per month in house prices during the summer, but this year those monthly declines are larger – a 3.6% drop in July from June and a drop down 2.4% in August from June, although national house prices are still higher than a year ago.
Some local markets may see year-on-year declines, Yun said.
But with the cost of financing a home rising, buyers are having to look to much lower priced homes to keep payments affordable.
If you bought a $300,000 house last year with an interest rate of 3%, the monthly payment would have been $1,265, Yun said. In order to keep the same monthly payment, they should consider a house that is priced 30% lower today.
“It doesn’t attract a lot of buyers,” he said.
In August, first-time buyers accounted for 29% of sales. It’s the same as last month and a year ago.
“The number of first-time buyers is not increasing,” Yun said. “The share should be above 30% or closer to 40%. But first-time buyers are really struggling, given today’s affordability challenges.